For those of you attending HostingCon 2011 feel free to use the discount code CHEVALCAPITAL2011 for a slight reduction in registration costs.
Frank
Keep yourself up to date: our most recent news
For those of you attending HostingCon 2011 feel free to use the discount code CHEVALCAPITAL2011 for a slight reduction in registration costs.
Frank
Hillary will be speaking at HostingCon 2011 (www.hostingcon.com) in San Diego.
Her panel, "How the Big Buyers Look At Acquisitions", is on Tuesday, August 9th at 3pm.
This is a unique panel comprised of some of the top hosters talking frankly about how they look at acquisitions. The panelists take a down to earth look at many parts of the acquisition process including how they determine value, what risk means to the purchase price, features that can add or reduce the price, and practical, real world advice for sellers and other prospective buyers. Panelists currently include Lance Crosby of SoftLayer, Joe Bardenheier of Endurance International, Ditlev Brehdahl of OnApp/UK2, Hillary Stiff of Cheval Capital and more!
Check out Hillary's comments in WHIR Magazine's March issue for an article on the accounting issues and hurdles that hosters face when selling their business, seeking financing or finding an investor (pages 34 - 36.) It is a good background article and if you have any questions or would like to talk more about it please give Hillary or Frank a call.
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 significant other businesses that may also affect the valuations. (All data was taken from publicly available financial statements and please see this post for how we calculate Enterprise Value - "EntValue".)
Congratulations to Zak Boca, CEO of SingleHop Inc., on being named to Crain's Chicago Business Top 40 Under 40 List. The list and interview with Zak can be found here. The writeup at the WHIR is pretty good as well.
We will be attending the WHIR's Networking Event in Washington, DC on October 21st. If you are planning to attend, please drop us a note or look for us there.
Thanks to the cPanel folks for a great conference this week in Houston. For those of you that didn't make it, here are a few of the new products that we found compelling and that you may wish to check out; www.1H.com, APSpanel.com, OnApp.com and www.Volance.com.
Hillary Stiff, Cheval Capital
Summarized below is an estimate of the relative valuations of some public companies that have significant hosting operations. Please be aware that a number of these companies have significant other businesses that may also affect the valuations. (All data was taken from publicly available financial statements and please see this post for how we calculate Enterprise Value - "EntValue".)
Closing prices as of 9/8/2010
AnnualizedEntValueEntValue/EntValue/
CompanyRevs ($mil) ($mil) Revenues EBITDA
North America
Savvis $ 887 $ 1,888 2.1 8.6
Rackspace $ 749 $ 2,874 3.8 11.6
Navisite $ 126 $ 224 1.8 9.3
Web.Com $ 99 $ 99 1.0 6.6
Peer1 $ 100 $ 187 1.9 7.3
Group iWeb $ 29 $ 48 1.7 6.1
Europe
United Internet $ 2,364 $ 4,092 1.7 8.9
Dada $ 195 $ 197 1.0 7.8
Mamut $ 76 $ 95 1.2 5.7
Net Benefit Gp $ 67 $ 127 1.9 8.6
IOMart Gp $ 31 $ 112 3.6 16.0
Australia
Melbourne IT $ 180 $ 202 1.1 7.8
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.
Summarized below is an estimate of the relative valuations of some public companies that have significant hosting operations. Please be aware that a number of these companies have significant other businesses that may also affect the valuations. (All data was taken from publicly available financial statements and please see this post for how we calculate Enterprise Value - "EntValue".)
Prices as of July 13, 2010(Midday) | ||||
Annualized | EntValue | EntValue/ | EntValue/ | |
Company | Revs ($mil) | ($mil) | Revenues | EBITDA |
North America | ||||
Savvis | $ 866 | $ 1,433 | 1.7 | 6.6 |
Rackspace | $ 715 | $ 2,408 | 3.4 | 10.1 |
Navisite | $ 126 | $ 211 | 1.7 | 8.8 |
Web.Com | $ 101 | $ 64 | 0.6 | 3.9 |
Peer1 | $ 100 | $ 174 | 1.7 | 6.8 |
Group iWeb | $ 29 | $ 45 | 1.6 | 5.6 |
Europe | ||||
United Internet | $ 2,327 | $ 3,729 | 1.6 | 8.2 |
Dada | $ 194 | $ 171 | 0.9 | 13.1 |
Mamut | $ 79 | $ 96 | 1.2 | 6.1 |
Net Benefit Gp | $ 65 | $ 108 | 1.7 | 7.4 |
IOMart Gp | $ 30 | $ 82 | 2.7 | 12.1 |
Australia | ||||
Melbourne IT | $ 167 | $ 200 | 1.2 | 8.1 |
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.
For those that have not yet registered for the upcoming HostingCon conference, use the code HostingIndustry2010 for a small discount.
Frank is speaking this year at HostingCon 2010 on Monday, July 19th at 9am.
The panel, "Adding Value to Your Business With Financial & Operating Metrics" is made up of some of the industry's most successful hosters talking about how they use numbers in their businesses. The panel is a practical, down to earth look at how financials and operating metrics help hosters manage their operations, make decisions and grow more effectively.
Panelists include Hari Ravichandran, President of Endurance, Zak Boca, President of SingleHop, Jay Sinder, CFO of Corelink Data Centers, Pat Matthews, VP and GM of Rackspace Cloud, Doug Erwin, CEO of The Planet, and is moderated by noted industry attorney David Snead.
Hillary will be leading a panel on acquisitions at HostingCon 2010 on Tuesday July 20th at 2pm.
The panel, "Practical Acquisition Advice: Process, Pricing, and Trends" is made up of some of the industry's leading acquirors talking frankly about how they look at acquisitions. This should be a great panel for anyone thinking of selling in the next few years as well as for prospective buyers interested in how others are doing it.
Panelists include Joe Bardenheier - SVP of Endurance, Colin Campbell - CEO of Hostopia, Ditlev Brehdal - CEO of UK2 Group and Michael Platner - Founder of Layered Technologies.
Companies that are beginning to think about selling their business often ask us how the sale process typically works. While it is not possible to summarize all of the possible ways to sell your business, we can give a brief outline of one way a small hoster might do it. We caution that every situation is different and the outline below may be inappropriate for your company and you should consult your financial and legal advisers before undertaking any sale. We also want to emphasize that there are many other ways to sell your business that may be as good if not better.
Here are the basic steps the owner of a small hosting company might sell their business.
1. Get ready
2. Find prospective buyers
3. Mutual confidentiality agreement
4. Provide high level information
5. Negotiate and agree on a summary of terms
6. Complete detailed due diligence
7. Negotiate and sign the purchase agreement(s)
8. Transfer/migrate the business to the purchaser
We'll go through each of these steps below;
1. Get ready. It is a good idea to prepare the basic information buyers will need to evaluate your business in advance of starting the process. That way, you don't risk losing momentum by stopping things partway along while you prepare a key piece of financial or technical information. You also won't risk losing sight of your own business if you have to try and fulfill a lot of data requests. The information to prepare in advance can vary a bit depending on your business, size and the nature of the prospective buyers. You would be in very good shape if you could pull together (a) a written summary of your business, its ownership, its products, etc. (we have a questionnaire that we use to help sellers put this together); (b) recent financial statements for the last 12 to 18 months, quarterly if possible; (c) the number of customers and amount of revenue broken down by product line; and (d) a summary of the customer accounts added and lost for the last year.
If you don't have any of the above, it doesn't mean you can't sell, it just means you have to use other things to get the buyer what they need. Try to keep the goal in mind - you need to help buyers understand how much cash your company will produce for them and the risks to that cash flow. The more confidence they have in your business and its cash flow production, the more likely you can get full value for it.
2. Find prospective buyers. Once you've got your information package ready, you need to find prospective buyers. This isn't an issue if you work with someone like us as we already know, and have relationships with, a very large number of prospective buyers. If you're doing it on your own, try to think of what we call the "logical" or "natural" buyers. If you lease servers or resell services of another company, they may be willing to buy you or refer you to their other customers. They have an incentive to find someone for you so you don't get purchased and moved to another provider. Likewise, it may make sense to talk with providers in your own geographic area or data center. Generally the goal is to talk with several prospective buyers to keep everyone competitive.
3. Mutual confidentiality agreement. A mutual confidentiality agreement (sometimes called a non-disclosure agreement or NDA) is an agreement between you and a prospective buyer that restricts each party's use of the confidential information of the other party. Since you're going to be disclosing key information about your company, it is generally a wise idea to have and NDA signed with each prospective buyer before giving them your information package. We strongly recommend getting a lawyer's help in putting one together (or reviewing one that you get from the internet or other sources.)
4. Provide high level information. Once you find a prospective buyer and have an NDA signed you can send over your package of material. Oftentimes a conference call to go over technical issues and for both sides to ask questions is a good idea after the information package has been reviewed. What is key at this step is that you want to give enough information for the prospective buyer to prepare an offer but not more. So for example, a revenue summary of customers by product makes sense to disclose at this point but a list of customer names does not. Also remember that you're trying to find out if they'd be a good buyer and need to find out as quickly as possible if they would be trustworthy, have the money, are a solid business, etc.
5. Negotiate and agree on a summary of terms. Once you have answered the high level questions, you want to have the prospective buyer provide an outline of what they would pay for your company and the key terms of the transaction including an expected time-line until closing. If the proposal is not acceptable as-is, the parties try and negotiate a mutually acceptable deal. Oftentimes once the outline of a transaction is agreed to, a non-binding letter is signed that sets out the key terms. Again, we strongly recommend having a lawyer advise you during this stage and help prepare or review any letter or agreement before you sign anything.
6. Complete detailed due diligence. Once you've agreed to a proposal, the buyer generally begins a more detailed due diligence of your business. They will look to confirm all the information you provided to them, see if there are any risks or liabilities that they missed and generally ensure that they have a detailed understanding of your business. Remember, they are trying to understand/confirm the amount of cash your business is likely to produce for them and the risks to that cash flow. You will also be looking closely at the buyer to confirm that they can fulfill their obligations and that they are trustworthy to do business with. We believe it is in your interest to ensure the buyer knows fully what he is getting. Surprises after closing are generally not good for either party.
7. Negotiate and sign the purchase agreement(s). Sometimes simultaneously with the due diligence, the buyer prepares the purchase agreement(s) that is then negotiated. Once you've reached agreement on the documents, both parties provide the information required within them and sign. We strongly recommend (yes again) having a lawyer help you with this.
8. Transfer/migrate the business to the purchaser. Once the purchase agreement(s) have been signed, there is sometimes a period where the buyer helps transfer the customers/assets/business to the seller. This transfer period may also be tied to the payment of the purchase price. For example, a certain part of the purchase price may only be paid once all of the customers are migrated onto the buyer's infrastructure. Buyer's want provisions like this when the seller's help/expertise is critical to the migration/transfer process.
Those are the major steps for how a smaller hoster might go about selling their business. Firms like ours help businesses navigate this process and hopefully make it go easier and faster while improving the chances for success.
As mentioned above, every business is different and this may or may not be the right method for you. As always, we strongly urge you to consult your business, financial and legal advisers before undertaking any significant transaction.
Please feel free to let us know if you have any questions.
Cheval Capital, Inc.
March 2010
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 advisers when valuing your company, considering the sale of your business or making other financial decisions.
Summarized below is an estimate of the relative valuations of some public companies that have significant hosting operations (as of Februrary 19, 2010.) Please be aware that a number of these companies have significant other businesses that may also affect their valuations.
Annualized | EntValue | EntValue | ||
Company | Revs ($mil) | ($mil) | Revenues | |
North America | ||||
Savvis | $ 879 | $ 1,488 | 1.7x | |
Rackspace | $ 678 | $ 2,817 | 4.2x | |
Navisite | $ 147 | $ 273 | 1.9x | |
Web.Com Group | $ 105 | $ 125 | 1.2x | |
Peer1 | $ 96 | $ 147 | 1.5x | |
Group iWeb | $ 27 | $ 46 | 1.7x | |
Europe | ||||
United Internet | $ 2,071 | $ 4,833 | 2.3x | |
Dada | $ 206 | $ 197 | 1.0x | |
Mamut | $ 77 | $ 127 | 1.7x | |
Net Benefit Gp | $ 69 | $ 135 | 2.0x | |
IOMart Gp | $ 26 | $ 71 | 2.7x | |
Australia | ||||
Melbourne IT | $ 188 | $ 197 | 1.0x |
As always, please feel free to contact us if you have any comments, or questions.
Cheval Capital, Inc.
Notes:
Enterprise Value ("EntValue") formulas: Please see this post for how we calculate Enterprise Value.
Multiple of Revenue: A multiple of revenue is not a great way to compare companies. However, the companies above all have very different capital and operating structures. As such for the puroposes here, we have found it to be the most straigthforward method of comparison.
Source of the data: All data was taken from publicly available financial statements.
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.