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January 2024 I2Coalition Legislative Update

The i2Coalition has posted their monthly update of regulatory events for January 2024. Their legislative outlook and summary of key events regarding Section 230/Intermediary Liability among other issues make this monthly summary worth the read. Join i2 to get the more detailed briefing!

The September I2Coalition Legislative Update

The folks at the i2Coalition have posted their monthly update of regulatory events for September 2022. Key events regarding Section 230/Intermediary Liability make it worth the read (among other issues.) Join i2 to get the more detailed briefing!

i2 Coalition June Legislative Update

i2 Coalition has released its June Legislative update with notes on a variety of pending legislation that will have a big impact on the internet infrastructure business. Check out their website and please consider joining!

The i2Coalition (Internet Infrastructure Coalition) ensures that those who build the infrastructure of the Internet have a voice in public policy. They are the leading voice for web hosting companies, data centers, domain registrars and registries, cloud infrastructure providers, managed services providers, and related tech.

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

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i2Coalition Panel: Privacy & Privacy Shield

The i2Coalition recently hosted a panel on Capitol Hill regarding the critical and impending issues of Privacy legislation in the US and the EU-US Privacy Shield. This was the third of three panels i2Coalition co-hosted with the European eco Association and included senior staffers from Congress, key i2Coalition members, Board Chair of the eco Association, and moderated by our own Frank Stiff, President of Cheval Capital and Board Chair of the i2Coalition. Watch the full video and learn more on the i2Coalition's website.

Key takeaway: Congress is moving toward enacting Privacy legislation that would have far reaching implications for US business, international trade and existing privacy laws such as California’s new privacy law (CCPA) and GDPR. See panel video 29:30 – 36:00 for an overview of what is driving the legislation and where things stand today.

Key takeaway: The EU-US Privacy Shield is a consensual, long-term data protection regime and is a requirement for any business model in which personal data is stored and processed across borders. Without Privacy Shield, it would be illegal to transfer personal data from the EU to the US, crippling Internet services trade between EU and the US. See 10:00 for an overview of Key Privacy Shield Issues Today.

Key takeaway: See 20:00 for two views on why privacy laws are different between the US & EU.

Key takeaway: See 44:30 for the lessons learned from GDPR after a year.

Cheval Capital

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 The Endurance International Group and Web.Com among many others. She has helped complete over 450 successful web hosting, ISP and related transactions and distributes a list of hosting and related companies that are for sale.

VALUATION OF PUBLIC HOSTING COMPANIES - NOVEMBER 26, 2018

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 has been the case for some time, companies with higher organic growth rates have higher valuation multiples.

2018-11-26 Fins.JPG

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 The Endurance International Group and Web.Com among many others. She has helped complete over 450 successful web hosting, ISP and related transactions and distributes a list of hosting and related companies that are for sale.

Blog Index & Twitter Feed

Web.com to be acquired by Siris Capital Group - UPDATED

Congratulations to our friends at Web.com on their agreement to sell the business to Siris Capital Group, LLC. for $28/share. The price reflects an Enterprise Value of approximately $2 billion and appears to be 10-11x Adjusted EBITDA (L3MA.)

The final purchase price of $28/share was an increase from the $25/share initially announced prior to the go-shop period thirty days prior and reflects some last minute bidding by prospective suitors.

Web.com is one of the older US hosters having been a startup by Norwest Venture Capital in the late 1990's. The transaction is expected to close in the fourth quarter of 2018.  

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 450 successful web hosting, ISP and related transactions and distributes a list of hosting and related companies that are for sale.

Frank Stiff appointed Director and 2019 Board Chair-Elect of the i2Coalition

Washington D.C., August 2nd, 2018 -  The i2Coalition (Internet Infrastructure Coalition) announced that Frank Stiff, President, and Co-Founder of Cheval Capital, has been appointed to its Board of Directors, and named Chair Elect. Mr. Stiff’s position as Chair Elect became effective on immediately. He will assume his role as Board Chair on January 1st, 2019 and hold the office throughout the year. Until that time, Mr. Stiff will work with current Board Chair Michele Neylon. Mr. Stiff’s full term on the Board of Directors will last until 2021.

Frank is an investment banker with particular expertise in Cloud, hosting and related Internet services businesses. He has spent the last twenty years providing advice and helping many companies in these sectors complete transactions. A regular speaker at industry conferences, Frank was an early member of the i2Coalition and has been active on the Policy Working Group and lobbying fly-ins.

Christian Dawson, i2Coalition Co-Founder, and Executive Director said, "We are a member-led organization, that believes in the importance of small business Internet innovation. I’m extra proud that we are turning to one of our most active members to take on the role of Chair Elect. Frank runs a business designed to help small businesses and is a small business owner himself. His insights have been, and will be, invaluable" 

“Frank has been actively engaged in the internet industry for eons. He knows all the players and has been very active and vocal as an advocate for the industry for many years. I’m confident that he will be a strong and rational voice for our industry,” added i2Coalition Board Chair and Blacknight CEO Michele Neylon. 

Frank commented, “It has been a great pleasure to work with the i2Coalition over the past seven years and I look forward to helping the organization continue its valuable work on behalf of the many companies that build and run the nuts and bolts of the Internet.”

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About i2Coalition

The i2Coalition (Internet Infrastructure Coalition) ensures that those who build the infrastructure of the Internet have a voice in global public policy. Founded in 2012, the i2Coalition is the leading voice for web hosting companies, data centers, registrars and registries, cloud infrastructure providers, managed services providers, and related tech. The i2Coalition protects the innovation and continued growth of the Internet’s infrastructure, essential to the global economy.

Contact
For more information, please contact:

Dakota Graves,
Communications Manager, i2Coalition
718 7th Street NW, 2nd Floor,
Washington DC 20001
Office: (202) 621 0773
dakota@i2Coalition.com

VALUATION OF PUBLIC HOSTING COMPANIES - MARCH 9, 2018

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. (We'll add United Internet when it releases Q4 2017 financial information on March 22.)

2018-03-09 Public Company Comps Pic.png

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 The Endurance International Group and Web.Com among many others. She has helped complete over 450 successful web hosting, ISP and related transactions and distributes a list of hosting and related companies that are for sale.

Blog Index & Twitter Feed

Cheval Year End Letter - 2017

We’d like to thank our clients and colleagues for a great 2017.  Overall M&A activity in cloud, hosting and related business segments was again at high levels and we were fortunate to complete 58 transactions during the year.  Our M&A transactions included a broad mix of sizes of cloud, hosting and related businesses and we have now completed over 430 internet related transactions since we first got started in the Internet services space in the mid-1990s. 

As the New Year starts, we’d like to take a moment to highlight some of our observations on the hosting, cloud and related business markets. 

SMB hosting/cloud business is a market of siloed mass-market-products: While this is not new, it is fascinating to us that such a large percentage of the SMB providers in the hosting/cloud space are companies offering a limited set of products/services on a mass-market, often commoditized basis. This focus on a limited product/service set is great for several reasons but it can also can create problems, particularly when market growth slows either due to maturation or competition from substitutes.

What happens when growth slows? As market growth has slowed in several business segments, the limited product/service set providers in those segments have seen their growth slow along with it. Providers that had been growing more slowly than the market to begin with have had difficulty even replacing normal attrition and some have begun to shrink.

Options: Service providers in these slow growth segments appear to be pursuing one or more of several paths (generally in order of declining difficulty);

  • Using sales and marketing to take customers away from other providers
  • Expanding into new products/services that are either related or have related customer bases
  • Abandoning customer growth as a goal and running the business to maximize the cash flow from these customers (either for distribution to owners or for expansion into unrelated businesses)
  • Using M&A to acquire customers or exit the business.

It appears larger providers pursue several of these options simultaneously. The small to mid-sized providers generally tend to focus on one or two.

Our view: While there will be a few providers that can take customers away from others and continue growth in these mature segments, we don’t think it will be possible for most providers unless they offer new, higher growth products or services. As such, we expect to see providers in these segments either (a) diversify into a broader suite of products/services with related customer bases, or (b) use M&A to acquire customers or exit.  

We hope this is helpful and we look forward to working with you in 2018.

Hillary Stiff & Frank Stiff
Cheval M&A, Inc.
Cheval Capital, Inc.

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.