Cheval M&A, Inc. & Cheval Capital, Inc. complete 500th Hosting, Cloud & Internet Services Transaction

FOR IMMEDITE RELEASE: 8/16/2019

 Cheval M&A and Cheval Capital complete 500th Hosting, Cloud & Internet Services Transaction

 Washington, DC – Boutique investment banking firms and Internet services specialists, Cheval M&A, Inc. and Cheval Capital, Inc. announced today that they have advised on their 500th successful transaction in the cloud, hosting, IAAS and related Internet services spaces.

Cheval achieved this milestone as a part of six transactions that have closed over the past few weeks and marks the 25th transaction they've successfully closed so far in 2019! These transactions have been completed with a wide variety of companies in the U.S., Canada, Europe, Middle East, and South America.

Extensive industry expertise helps maximize client value from the unique aspects of their business, regardless of location. Smaller clients realize particular benefit from demand created by the Cheval Opportunities List.

Hillary Stiff of Cheval M&A commented on the event, “We’ve been very fortunate since we began in this industry in the late 1990s to have worked with a large number of great companies of all types and sizes, including some of the top names in the industry.  We had the pleasure in this case to close a mix of transactions, ranging from hoster/cloud providers to large IPv4 blocks, to push us over 500.”

To learn more about Cheval M&A, Inc. and Cheval Capital, please visit: www.chevalacq.com and www.chevalcap.com. 

About Cheval M&A, Inc. and Cheval Capital, Inc.

Cheval M&A, Inc. and Cheval Capital, Inc. are boutique Investment banks specializing in mergers, acquisitions and corporate finance. They have expertise in a variety of industries but have been particularly active in the Internet services arena since the mid 1990’s.

Cheval Capital, Inc. is a FINRA (www.finra.org) registered broker-dealer

Contact 

For additional information, please contact; 

Frank Stiff

Cheval Capital, Inc

+1-703-549-7390

fstiff - at - chevalcap.com

 ###

Disappearing Revenue (or Another reason to hate Deferred Revenue)

This is a bit of an inside baseball kind of post on M&A accounting.

The issue we wanted to bring up is about revenue disappearing in an acquisition just because of accounting rules. The reason? GAAP (the standards for US accounting) require a buyer to adjust Deferred Revenue to its "fair value". That "fair value" is typically the cost of providing the service that underlies the Deferred Revenue.

Just to review;

• Deferred Revenue is a balance sheet liability created when someone pays in advance for a service. If a customer pays you $240 for 12 months of service, 1st month revenue is $20 and Deferred Revenue goes up by $220. 
• The next month the company receives no additional cash but books revenue of $20 and Deferred Revenue declines by $20.
• This occurs every month until month 12, when the company books $20 of revenue and Deferred Revenue goes to $0.

So if the cost of providing the underlying service is 70% of the revenue, then on closing the value of Deferred Revenue goes down by 30% and all the revenue & income associated with it disappear for Income Statement purposes. The customers are still there and when they renew that revenue comes back at 100%.

How big an issue is this? Web.Com lost $8.6 million of quarterly revenue & earnings in Q1 '16, another $6 million in Q2 '16 and $1-2 million in every quarter since because of this. The percentage of annual payers and operating margin being the key drivers.

This kind of revenue loss can have a big impact on loan ratios, earn-out payments, budgets, etc. and is best identified and dealt with prior to closing.

For a more on this topic please feel free to give us a call or check out this Journal of Accounting article.

Cheval Capital, Inc.

Disclaimer: This post is for general information purposes and is not meant to be taken as financial advice, a recommendation to buy or sell any stocks mentioned above, a comprehensive discussion of valuation or how to do any calculations. Please be sure to consult your financial advisors when valuing your company, considering the sale of your business or making other financial decisions.

Cheval Capital Celebrates Our 400th Transaction!

We're excited to announce that Cheval Capital recently celebrated our 400th transaction! Since we first entered the space in the late 1990's Hillary & Frank have helped businesses in cloud, hosting, and IAAS industries navigate the tricky waters of mergers and acquisitions, financings and corporate finance.

The 400-transaction benchmark also marks the 25th transaction we've successfully closed so far in 2017! Over the last few months we've completed transactions with companies in Ireland, Australia, New Zealand, China, Israel, Canada as well as the US.

Our extensive industry expertise & network have enabled us to help our clients get maximum value from the unique aspects of their business regardless of location.

Here's what Hillary Stiff had to say about passing the 400 mark, “Over the last few years our business has grown as providers have struggled with organic growth and have turned to acquisitions instead. This acquisition demand has supported prices and led to an active transaction market."

Click on the links above to get more information about Cheval or feel free to contact us with any questions you have. We're always happy to help.
 

Hillary Stiff's HostingCon 2017 Valuation Slides

Below is a link to Hillary Stiff's slides from HostingCon 2017 on current valuations in the hosting and cloud markets. Please feel free to send over any questions.

Cheval Capital, Inc.

Disclaimer: This post is for general information purposes and is not meant to be taken as financial advice, a recommendation to buy or sell any stocks mentioned above, a comprehensive discussion of valuation or how to do the calculations discussed. Please be sure to consult your financial advisors when valuing your company, considering the sale or purchase of a business or making other financial decisions.

Cheval Year End Letter - 2016

Happy New Year

We want to thank our clients and colleagues for a record breaking 2016.  M&A activity in cloud, hosting and related business segments was at high levels during 2016 and we were fortunate to complete 24 M&A and 35 IPv4 block transactions.  The M&A transactions included a broad mix of sizes and types of hosting businesses and we have now completed over 370 internet services and related transactions since we first got started in the space in the mid-1990s.  

As we have done for the last few years at this time, we’d like to take a moment to highlight a few of the industry trends that caught our eye during 2016:

Industry growth in dollar terms continues to accelerate - *: The Hosting and Cloud business had another solid year in 2016. While the industry’s growth rate declined to an estimated 18.8% rate in 2016 from 20.2% in 2015, the industry’s growth in total dollars accelerated from an estimated $12.1B increase in 2015 to an estimated $13.5B increase in 2016. We believe the continued increases in dollar growth to be a more significant predictor of industry health than percentage growth at this time, particularly in the current stable/declining price environment. These increases highlight the continued expansion of demand for cloud, hosting and related services. 451 Group’s projections indicate growth in dollar terms is likely to continue to accelerate over the next few years.

As in previous years, growth across the industry continues to be uneven. This year we’ve worked with hosters growing at 30+% per year and hosters that are shrinking. We expect this unevenness to continue.

(* - 451 Research, Market Monitor 2016.)

Divergence of brains & brawn: We’ve seen increasing numbers of service providers offering service on others’ infrastructure. While not uncommon in the past, we’re now seeing it on a larger scale and among providers of higher end and more specialized services. Our expectation is that as the hyper-scalers continue to reduce prices and expand service, we will see more of these infrastructure-lite providers. We believe this separation is due in part to a declining rate of return on commodity infrastructure and in part from new opportunities the hyperscalers are creating (e.g. support, onboarding, management.)

We also believe that for the smaller providers, selling brains is likely to generate a higher risk adjusted return than commodity computing infrastructure. A key problem however, is that valuation and sale of businesses that sell hours of service like a consulting firm can be more difficult. Companies following this path need to ensure they automate and productize their service.

AWS Lightsail: Amazon Web Services (“AWS”) released a new VPS hosting product in late 2016. While the Lightsail product is not revolutionary or particularly aggressively priced, it does signal AWS’s desire to go after the unmanaged VPS market more seriously. If AWS remains true to form, we can expect price cuts, better hardware and an expanded product/service portfolio down the road. Given their size advantages, they are likely to be a formidable competitor to existing SMB hosters.

Ongoing M&A Trends: Lastly, a number of the M&A trends we highlighted last year appear to be continuing. Rather than repeat ourselves, you may find our 2015 letter https://www.chevalcap.com/blog/2016/1/11/hosting-ma-update of interest.

Best wishes for a happy and healthy 2017!

Hillary Stiff & Frank Stiff
Cheval Capital, Inc.

Valuation of Public Hosting Companies - September 28, 2016

Summarized below are estimates of the relative valuations of some public companies that have significant hosting operations. Please be aware that a number of these companies have other businesses that also affect their valuations. (All data was taken from publicly available financial information and please see this post for how we calculate Enterprise Value.)  If you wish to get a sense for changes to valuations over time, here is a link to some of our past valuation summaries.

As always, please feel free to contact us if you have any comments, or questions.

Cheval Capital, Inc.

Disclaimer: This post is for general information purposes and is not meant to be taken as financial advice, a recommendation to buy or sell the stocks mentioned above, a comprehensive discussion of valuation or how to do the calculations discussed. Please be sure to consult your financial advisors when valuing your company, considering the sale of your business or making other financial decisions.

Author: Hillary Stiff is Managing Director of Cheval Capital. She has been an investment banker and CFO, completing M&A transactions and arranging financing for a number of companies including NTT/Verio, The Endurance International Group and Web.Com among many others. She has helped complete over 350 successful web hosting, ISP and related transactions and distributes a list of hosting and related companies that are for sale.

Blog Index & Twitter Feed

Washington & Encryption

David Snead, co-founder of the Internet Infrastructure Coalition (i2C), and I went to Capitol Hill this past week to lobby on Encryption issues.

The good news was that the Feinstein - Burr legislation was generally thought to be ill-conceived and not going to pass in its current form.  Given the strength of the comments we heard, I got the sense that they had been getting a lot of negative comments on the legislation from different parts of the debate. Unfortunately, the discussions did indicate there was still room for consideration of similarly troublesome legislation in the future.  If you are not up on Feinstein - Burr I recommend this Tech Crunch article.

I think most also recognized that breaking encryption in some manner was not really an option and they wanted to try and find other options to help law enforcement deal with encryption.

In the interesting news camp, there were a number of comments about developing rules to allow the law enforcement, under a valid court order, to hack (or hire hackers to hack) encrypted data. 

The concerning news was that despite making comments about how they recognized that breaking encryption was a bad idea, several commented on the need for both sides to compromise.  How we compromise without breaking encryption is a mystery and a concern that they don't quite get it.

A final note regarding the i2C. These lobbying trips are one of the great perks of being an i2C member and I encourage folks to join the organization and its fight to minimize disruption from ill-conceived government actions.  The current fight on encryption is a hugely important one and I encourage everyone to join in.

Cheval Capital Advises Melbourne IT Group on the sale of their International Domain Name Business to Tucows

Congratulations to the folks at Melbourne IT on the sale of their international domain business to Tucows.  Cheval advised Melbourne IT in the sale. 

Melbourne IT Group is a publicly listed company based in Australia. Their Small and Medium Business Division is Australia’s largest domains and hosting business, providing service to SMB’s under the Melbourne IT, WebCentral, Netregistry, and TPP brands.  Melbourne IT’s Enterprise Services Business Division is Australia’s leading software and cloud enabled and services business, operating under the Melbourne IT, Outware Systems and InfoReady brands. 

Frank Stiff, President of Cheval Capital commented on the event, “We were pleased to have been able to assist Melbourne IT with this transaction. Melbourne IT’s international domain name business, with its 250 global resellers across the USA, Europe and Asia, is a unique asset and was an excellent opportunity for Tucows to acquire a loyal, profitable base of resellers that has the same core needs as their existing wholesale customers.”

SingleHop's 6th Year on the Inc 5000

Congratulations to our friends at SingleHop for their 6th consecutive year on the Inc 5000. 

Hillary Stiff Speaking At HostingCon Global

Hillary Stiff will be speaking at HostingCon Global in San Diego on July 27.  Her panel will look at the changes in Hosting M&A in 2014 and 2015 and the trends that have been building to cause these changes.  Panelists include Ditlev Bredahl of OnApp, Liam Eagle of 451 Group, & Ted Chang of GoDaddy.

Please let us know if you will be attending as we'd be happy to get together.    

Author: Hillary Stiff is Managing Director of Cheval Capital. She has been an investment banker and CFO, completing M&A transactions and arranging financing for a number of companies including NTT/Verio, The Endurance International Group and Web.Com among many others. She has helped complete over 280 successful web hosting, ISP and related transactions and distributes a list of hosting and related companies that are for sale.

GoDaddy IPO - Pricing & Valuation

Congratulations to the folks at GoDaddy who priced their IPO last night above the range at $20/share.  It should begin trading sometime later this morning. 

Assuming no exercise of the underwriter's overallotment option and taking into account the 26mm+ issued but unexercised employee stock options , $20/share works out to a traditional Enterprise Value of approximately 19x EBITDA (LQA), ~ $4.3bn.  (Please see this post for how we calculate Enterprise Value). 

Here is a link to some of our past valuation summaries.

As always, please feel free to contact us if you have any comments, or questions.

Cheval Capital, Inc.

Disclaimer: This post is for general information purposes and is not meant to be taken as financial advice, a recommendation to buy or sell the stocks mentioned above, a comprehensive discussion of valuation or how to do the calculations discussed. Please be sure to consult your financial advisors when valuing your company, considering the sale of your business or making other financial decisions.

Author: Hillary Stiff is Managing Director of Cheval Capital. She has been an investment banker and CFO, completing M&A transactions and arranging financing for a number of companies including NTT/Verio, The Endurance International Group and Web.Com among many others. She has helped complete over 270 successful web hosting, ISP and related transactions and distributes a list of hosting and related companies that are for sale.

GoDaddy IPO - Expected Price Range & Valuation

GoDaddy amended its S1 last night to include an expected price range for its IPO of $17-$19 per share.  At the mid-point of this range, the equity value comes in just above $2.7bn and, on a fully diluted basis, in excess of $3.2bn. The traditional Enterprise Value calculation comes it at more than 16x EBITDA, approximately 17.5x EBITDA if you include the dilutive effects of employee stock options (please see this post for how we calculate Enterprise Value).  We'll provide more details when the offering gets priced and begins trading.

 Here is a link to some of our past valuation summaries.

As always, please feel free to contact us if you have any comments, or questions.

Cheval Capital, Inc.

Disclaimer: This post is for general information purposes and is not meant to be taken as financial advice, a recommendation to buy or sell the stocks mentioned above, a comprehensive discussion of valuation or how to do the calculations discussed. Please be sure to consult your financial advisors when valuing your company, considering the sale of your business or making other financial decisions.

Author: Hillary Stiff is Managing Director of Cheval Capital. She has been an investment banker and CFO, completing M&A transactions and arranging financing for a number of companies including NTT/Verio, The Endurance International Group and Web.Com among many others. She has helped complete over 270 successful web hosting, ISP and related transactions and distributes a list of hosting and related companies that are

Valuation of Public Hosting Companies - March 17, 2015

Summarized below are estimates of the relative valuations of some public companies that have significant hosting operations. Please be aware that a number of these companies have other businesses that may also affect their valuations. (All data was taken from publicly available financial information and please see this post for how we calculate Enterprise Value.)  If you wish to get a sense for changes to valuations over time, here is a link to some of our past valuation summaries.

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* - The financial data for most of the above companies is based on their press releases and is as of 12/31/2014. We will update the valuations when the companies make their SEC filings and more of the European hosters have released results.

As always, please feel free to contact us if you have any comments, or questions.

Cheval Capital, Inc.

Disclaimer: This post is for general information purposes and is not meant to be taken as financial advice, a recommendation to buy or sell the stocks mentioned above, a comprehensive discussion of valuation or how to do the calculations discussed. Please be sure to consult your financial advisors when valuing your company, considering the sale of your business or making other financial decisions.

Author: Hillary Stiff is Managing Director of Cheval Capital. She has been an investment banker and CFO, completing M&A transactions and arranging financing for a number of companies including NTT/Verio, The Endurance International Group and Web.Com among many others. She has helped complete over 270 successful web hosting, ISP and related transactions and distributes a list of hosting and related companies that are