Valuation of Public Hosting Companies - 7/25/2008

Summarized below is an estimate of the relative valuations of some of the major hosting companies as of July 21, 2008.    

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Hostopia's recent acquisition by Deluxe looks to be about 2.8x current annualized revenue.  That takes into account the large amount of cash on their books and their revenue at the time of the deal.  Hostopia management also highlights to us that there is a lot of value in their platform (IP and otherwise) that should receive some allocation of the purchase price.  This allocation would reduce the relative multiple to 1.8x revenues.  (Thanks to Hostopia for talking through the valuation with us and updating our figures for revenue at the time of the transaction.)

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

Cheval Capital, Inc.

Enterprise Value formulas: We typically look at two formulas for calculating Enterprise Value and make adjustments from there if necessary. 

- Enterprise Value = (Fully Diluted Shares * Current Stock Price) plus Debt (long and short term, including capital leases) less any option exercise proceeds for unexercised, in-the-money, options included in Fully Diluted Shares.

- Enterprise Value = (Fully Diluted Shares * Current Stock Price) less Current Assets plus Total Liabilities less any option exercise proceeds for unexercised, in-the-money, options included in Fully Diluted Shares.

The reason why we look at two formulas is that some companies have unusual balance sheet items, e.g. large cash balances, that can distort valuation.

Source of the data: All data was taken from public financial statements for the quarter ended March 31, 2008 or April 30 2008.  

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.

Valuation of Public Hosting Companies - 5/7/2008

With the recent turmoil in the financial markets we thought it might be helpful to take a look at the current valuations of public hosting companies to see how they were holding up. There seem to be at least five public companies that have hosting, in one form or another, as a major component of their business.  The table below summarizes their valuations on a multiple of revenues basis.

As of May 7, 2008, Midday     
 
Company                   Annlzd Revs  Ent Value/Revs 
Savvis                       $ 791         1.6 x
Navisite                     $ 156         2.0 x
WebSitePros/Web.Com          $ 124         2.1 x
Peer1                        $  89         2.1 x
Hostopia                     $  29      (See Note) 

($ in Millions)

I've just seen the Press Release for Hostopia's acquisition of some of Tucow's shared hosting customers.  While it does not specify a valuation, it does indicate a total purchase price of $1.6 million and that 14,000 customer accounts were purchased which works out to approximately $114 per account.

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

Cheval Capital, Inc.

A note about Enterprise Value formulas and Hostopia: We typically look at two formulas for calculating Enterprise Value and make adjustments from there as necessary.  The two formulas are;

- Enterprise Value = (Fully Diluted Shares * Current Stock Price) plus Debt (long and short term, including capital leases) less any option exercise proceeds for unexercised, in-the-money, options included in Fully Diluted Shares.

- Enterprise Value = (Fully Diluted Shares * Current Stock Price) less Current Assets plus Total Liabilities less any option exercise proceeds for unexercised, in-the-money, options included in Fully Diluted Shares.

A good example for why we look at two formulas in this case is Hostopia.  Hostopia currently has an equity value of $54 million, annualized revenues of $29 million and essentially no debt.  Under the first formula, Hostopia's EV/Revenue multiple comes out at over 1.8x while the second formula produces an EV/Revenue of 0.9x.  The reason for the difference is that at 12/31/2007 Hostopia had $26 million in cash.  The first formula assigns all of the market value to the revenues and the second formula subtracts the cash value from the market value and assigns the remaining value to the revenues.  In reality, neither is probably correct and the correct answer is somewhere in between.  

Source of the data: All data was taken from public financial statements for the quarter ended December 2007 or January 2008.  Stock prices were as of midday on May 7, 2008.

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.