Valuation of Public Hosting Companies - January 31, 2013
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 statements and please see this post for how we calculate Enterprise Value.)
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.
Valuation of Public Hosting Companies - July 13, 2012
Valuation of Public Hosting Companies - March 16, 2012
Comment on Public Hoster Valuations
Just a brief comment on the valuations of public hosting companies that I posted a few minutes ago. If you look back at the valuations over the last year, you'll see that while the companies generally have had good revenue growth, their valuation multiples (vs EBITDA) have seemed to expand at a faster rate.
Valuation of Public Hosting Companies - February 16, 2011
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".)
Valuation of Public Hosting Companies - September 8, 2010
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.
Valuation of Public Hosting Companies - July 13, 2010
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.
Valuation of Public Hosting Companies - Februrary 19, 2010
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.
WHIR Webinar Q & A
We participated in a recent webinar sponsored by The Whir on "Selling Your Hosting Company" where a number of questions did not get answered due to time constraints. We have taken a shot at answering these questions below. Please don't hesitate to drop us a note (fstiff [at] chevalcap [dot] com) if you have any questions or comments.
The webinar can be played back here.
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
WHIR Webinar Q & A
Q: I've been involved in a few hosting sales and acquisitions, and I'm curious if "poor documentation" as far as assets, revenue, etc is common?
- Unfortunately, it is common. It is particularly a problem with financials but also occurs in other areas as well. For some reason it seems that the owners of hosting businesses tend to be less focused on financial record keeping than we have seen in other industries. Unfortunately, this probably hurts the value they would get on a sale of their business.
The other part of the problem is sometimes responsiveness. A hoster may have or be able to get the information but is just very slow in doing so. This can hurt value if buyers get the impression that the data is not available or is dis-organized. It can also hurt the momentum of a transaction and cause buyers to lose interest.
Q: Does having a custom Control Panel typically negatively impact the valuation of a hosting business? Q: In shared, does the control panel used effect the value?
- Almost all buyers want to move customers onto their own control panel. That means the question is really about how easy it is to migrate from the control panel being used by the seller. If it is easy, then there is no valuation hit. If it is difficult then there may be a lower valuation due either to the cost/risk issue of the migration or that there are fewer buyers willing to undertake it at all. (Remember, it is not just custom panels, if you are on a commercially available, third party panel that is difficult to migrate from you may have the same issue.)
Q: Would factors such as virtually 0% "churn" over multiple years affect value?
- It would be very much of a positive.
Q: What is the average migration time when purchasing a average size hosting company?
- It is much too varied to give you an estimate. Some migrations are very simple and take a week. Some take months and months of planning and execution. It really depends on
Q: What effect will Cloud have on Shared?
- We're not very good at projecting the future but I'm not sure the Cloud will have much of an effect on the shared side of the business. I believe it's biggest effect will be in the dedicated/managed/colo areas,
Q: Are buyers interested in hosting businesses that are $50,000+ sales without infrastructure i.e a Reseller.
- This business would likely be a very attractive acquisition candidate as long as the Reseller owned the customers and they could be moved to the buyers infrastructure.
Q: Are Canadian hosting companies worth more or less than US firms? Does the different currency scare buyers off?
- For Canadian hosters that bill is $US and are selling the assets of their company, then no, there appears to be no overall difference in valuations with those in the US (that we can see.) However, companies that bill in $CAD do reduce the number of US buyers as well as the fact that in some cases Canadian hosters want to sell their business in a stock transaction vs and asset transaction (due to tax law.) Another potential area that can reduce the number of buyers is when support is offered in multiple languages.
Q: Do purchase price multiples change on company size?
- Generally they increase as you get larger. However, we've seen exceptions to this depending on the specifics of the underlying company.
Q: What's the rationale behind the lower market value on dedicated sales?
- We don't know for sure but there appear to be a couple of possibilities; (1) dedicated hosting does not seem to have quite the profitablity/economies of scale that shared hosting does, (2) it is much more costly & risky to migrate dedicated customers, and (3) overall there are fewer buyers for dedicated customers (perhaps as a result of 1 & 2.) Another possibility is that it costs less to add a customer via marketing. In other words, if you can add a customer by marketing for $800 why would you pay $1,200 to buy one?
Q: How are deals typically paid out? 100% cash at closing? Monthly terms? Can you tell us a bit about deal terms? Are there holdbacks? Any migration protections? Q: Is the purchase multiple effected by deal terms? Are they related?
- Deal terms can vary greatly but typically the bulk of the purchase price is paid at or near the closing of the deal with some amount 20-40% held back for up to a year as protection against false statements in the purchase agreements. The purchase price definitely varies with the deal terms. For example, cases where 100% of the purchase price is paid on closing are much riskier for the buyer (and less risky for the seller) and so there is generally is a lower purchase price. Cases where none of the purchase price is paid on closing or where the price can be reduced if customers leave are much riskier for the seller (and less risky for the buyer) and so there is generally is a higher purchase price.
Q: Does the quality of hardware affect sale with a dedicated host. White box vs Dell equip?
- We have not seen that big an effect although it does matter. Remember two things though about servers;
(1) When we talk about values and multiples, those reflect a price for all of the assets (including the servers) but not the liabilities. So if you have lease liabilites, those liabilities will reduce how much you net.
(2) If you rent the boxes on a month-to-month basis, there may be no deduction as in (1) but buyers that plan to move the customers into their own data centers will have to buy a box for them which reduces the cash they get from the acquisition (which reduces the cash they can pay you.)
Q: What does it cost to use a broker -- to the buyer? to the seller? How is the broker paid?
- The banker/broker is typically paid by whomever hires them. However with our list service, there is no charge to the seller as the buyer pays our fee of 5% on the first $5 million of purchase price and 1% thereafter.
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
Deutche Telekom purchases Strato Hosting
The WHIR reports that Deutche Telekom is buying European hoster Strato for EUR275 million. This works out to just over $400 million and, based on published information, approximately 3.1x revenue and 8.6x EBITDA. (These multiples are based on published reports of Strato's results for the first 9 months of 2009 annualized.)
Please keep in mind that we do not know if there was any debt assumed by DT or if there were any other assets included as a part of the deal. Either of which would distort the multiples from what is shown above.
Disclaimer: This post is for general information purposes and is not meant to be taken as financial advice, a recommendation to buy or sell any stocks mentioned above, a comprehensive discussion of valuation or how to do the calculations discussed. Please be sure to consult your financial advisors when valuing your company, considering the sale of your business or making other financial decisions.
Valuation of Public Hosting Companies - July 21, 2009
Summarized below is an estimate of the relative valuations of some of the public companies that have significant hosting operations as of July 21, 2009. (Please be aware that a number of these companies have significant other businesses that may also affect their valuations.)
| Annualized | ||||
| Company | Revs ($mil) | EntValue/Revs | ||
| North America | ||||
| Savvis | $ 886 | 1.4x | ||
| Rackspace | $ 580 | 3.1x | ||
| Navisite | $ 149 | 1.2x | ||
| Web.Com Group | $ 111 | 1.4x | ||
| Peer1 | $ 91 | 1.5x | ||
| Group iWeb | $ 25 | 1.7x | ||
| Europe | ||||
| United Internet | $ 2,403 | 1.7x | ||
| Dada | $ 218 | 1.0x | ||
| Mamut | $ 83 | 1.4x | ||
| Net Benefit Gp | $ 64 | 1.7x | ||
| IOMart Gp | $ 19 | 2.7x | ||
| Australia | ||||
| Melbourne IT | $ 151 | 1.3x |
As always, please feel free to contact us if you have any comments, or questions.
Cheval Capital, Inc.
Notes:
Enterprise Value formulas: Please see this post for how we calculate Enterprise Value.
Multiple of Revenue: The reason that we use a multiple of revenue to compare these companies is that they all have very different capital and operating structures and compete in different parts of the hosting business. While not a great way to compare companies, we believe that for high level comparisons it is the most straightforward.
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.
Valuation of Public Hosting Companies - March 9, 2009
Summarized below is an estimate of the relative valuations of some of the major hosting companies as of March 9, 2009.
Annualized Enterprise
Company Revs ($ mil) Value/Revs
United Internet $ 2,058 1.1 x
Savvis $ 890 1.0 x
Rackspace $ 573 1.6 x
Dada $ 226 0.7 x
Navisite $ 151 0.9 x
Web.Com $ 116 0.5 x
Peer 1 $ 95 1.0 x
Group iWeb $ 15 1.8 x
As always, please feel free to contact us if you have any comments, or questions.
Cheval Capital, Inc.
Notes:
Enterprise Value formulas: Please see this post for how we calculate Enterprise Value.
Multiple of Revenue: The reason that we use a multiple of revenue to compare these companies is that they all have very different capital and operating structures and compete in different parts of the hosting business. While not a great way to compare companies, we believe that for high level comparisons it is the most straightforward.
Source of the data: All data was taken from public financial statements for the periods ended September 30, 2008 or December 31, 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.
Enterprise Value Calculation
REVISED MARCH 11, 2018: We've been asked recently about the concept of Enterprise Value and how it is calculated. Briefly, Enterprise Value attempts to calculate the value of the operating business of a firm without regard to its capital structure or (ideally) other non-operating factors like an unusually large cash balance.
Here are the two formulas we typically use for public companies.
1 - Enterprise Value = (Outstanding Shares * Current Stock Price) plus Debt (long and short term, including capital leases) less cash & marketable securities. [UPDATE 9/8/10: We changed our calculation to subtract off cash and marketable securities as noted. UPDATE 3/11/18: We're no longer using fully diluted shares and option exercise proceeds in the calculations.]
2 - Enterprise Value = (Outstanding Shares * Current Stock Price) less Current Assets plus Total Liabilities. (UPDATE 3/11/18: We're no longer using fully diluted shares and option exercise proceeds in the calculations.)
While the formula many use is probably something similar to #1, we also look at #2 as some companies have unusual balance sheet items that can distort the result of #1. #2 may also be more applicable when you are trying to look at valuations for asset purchase transactions where the bulk of current assets and total liabilities are left behind with the seller (as in hosting.) It is also important to keep an eye on the amount of un-exercised, in the money options as these can distort valuation as well. Circumstances may dictate using a hybrid formula to ensure a logical result.
As always, if you have any questions please do not hesitate to contact us.
Author: Hillary Stiff, Managing Director of Cheval Capital. Hillary 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 250 successful web hosting, ISP and related transactions and distributes a list of hosting and related companies that are for sale.
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 - February 1, 2009
Summarized below is an estimate of the relative valuations of some of the major hosting companies as of February 1, 2009.
Annualized Enterprise
Company Revs ($ mil) Value/Revs
United Internet $ 2,081 1.3 x
Savvis $ 873 1.1 x
Rackspace $ 553 1.3 x
Dada $ 229 0.8 x
Navisite $ 159 0.9 x
Web.Com $ 122 0.6 x
Peer 1 $ 94 1.2 x
Group iWeb $ 15 2.0 x
As always, please feel free to contact us if you have any comments, or questions.
Cheval Capital, Inc.
Calculation Notes
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.
Multiple of Revenue: The reason that we use a multiple of revenue to compare these companies is that they all have very different capital and operating structures and compete in different parts of the hosting business. While not a great way to compare companies, we believe that for high level comparisons it is the most straqightforward.
Source of the data: All data was taken from public financial statements for the quarter ended September 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.