In another eyebrow-raising acquisition of a Los Angeles tech company, Verizon Communications Inc. announced Monday that it plans to buy Santa Monica content delivery network EdgeCast Networks Inc.
EdgeCast will function as Verizon’s main provider of content delivery services and is part of the Basking Ridge, N.J. wireless company’s effort to expand its array of digital services. EdgeCast will remain in its Santa Monica offices where it houses most of its 300 employees; it hasn’t been determined whether EdgeCast will keep its name.
The deal, which multiple outlets pegged at just under $400 million, is still pending approval by the Department of Justice.
Content delivery services provide websites and apps with redundant servers at multiple locations to speed up online connections and offer backups in case a server goes down. EdgeCast lists more than 6,000 companies among its client base including Twitter, Tumblr and Yahoo.
For Verizon, picking up EdgeCast is meant to fortify its delivery of digital video content, which has become a major component of web traffic.
“This is clearly the next step forward for our video strategy because we know that’s where consumption is going,” said Bob Toohey, president of Verizon Digital Media Services. “It’s a great alignment given our companies’ very clear paths.”
A source close to EdgeCast said that potential buyers have been circling the firm for some time. But people close to the company had indicated that it was headed toward a public offering. A few months ago EdgeCast raised a $54 million series D round. Executives at the firm, which was founded in 2007 by a group of entrepreneurs, have said it’s profitable with 2013 revenue above $100 million.
Content delivery is a capital intensive service. The market is dominated by Akamai Technologies, a Boston company that controls nearly one-fifth of all web traffic. Now with Verizon as a parent company, EdgeCast executives said they have the firepower – and the bank account – to carve out a bigger niche in the content delivery marketplace.
“We now have the resources of a Fortune 15 company and a massive global network,” said EdgeCast President James Segil. “I look forward to a healthy competitive future. I certainly believe we have a tremendous competitive advantage.”
EdgeCast’s sale will bring a return to a number of L.A. based investors. Much of the company’s early funds came from Steamboat Ventures, the investment arm of Burbank’s Walt Disney Corp. A few local angel investors have also contributed at the seed level, including Mark Mullen of Double M Capital and Clark Landry.
The deal is the second large acquisition of an LA tech company in recent days. Last week Intuit bought Santa Monica online document library Docstoc for a reported $50 million.
Segil, who’s a Los Angeles native, said the EdgeCast and Docstoc deals serve as an indication that the local tech scene is finally catching the eye of wealthy outsiders.
“It’s a nice crowning achievement that this kind of news hit the marketplace,” Segil said. “It’s a validation of our community that the global operators are paying attention to what we’re doing.”
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