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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.

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.

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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.

 

 

How To Buy An Online Business With An SBA Loan - The Requirements

How To Buy An Online Business With An SBA Loan - The Requirements

We'd like to thank Mark Daoust, owner of Quiet Light Brokerage, for giving us permission to reprint his blog post on SBA loans, part 1 of which is below.  Mark is the go-to-guy for the purchase or sale of online eCommerce businesses and if you have an interest in that space, we encourage you to contact him at inquiries@quietlightbrokerage.com.

The US Government's Small Business Administration lends up to $5 million that businesses that meet certain criteria. The post below talks about the general requriements of an SBA loan while part 2 will get into the process of applying for an SBA loan.