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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.)

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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.

 

 

VALUATION OF PUBLIC HOSTING COMPANIES - March 22, 2017

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

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United Internet Acquires Strato from Deutsche Telekom

Continuing the trend of telecom companies divesting hosting and co-location assets, Deutsche Telekom announced last week that it would sell its Strato hosting arm to United Internet for E600mm, approximately 12.4x 2016 EBITDA. For those keeping score, Deutsche Telekom acquired Strato in 2009 for E275MM giving it a compound annual return of about 11.8% (ignoring  intervening cash flows.)

Two other key points; approximately E34mm of the purchase price is subject to the business hitting certain performance targets which may take a little of the price risk out of the deal. Second, United Internet is reporting an expected E20mm p.a. of synergies from integrating the two businesses. Those additional synergies bring the incremental EBITDA margin for United to approximately 54%.

Overall pricing is in the same ballpark as GoDaddy's recent purchase of Host Europe Group.

United Internet's presentation on the purchase can be found here.

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

GoDaddy Acquires Host Europe Group

Congratulations to the folks at GoDaddy and Host Europe on their announced transaction.

The purchase price of $1.82 billion (including debt assumption) works out to approximately 13x 2016 EBITDA.  This compares to GoDaddy's estimated public market value of 15-20x EBITDA before the announcement.

Both companies have great management teams and this seems to be a transaction where there is an excellent chance that 2 + 2 > 4.

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 350 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 - September 28, 2016

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

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VALUATION OF PUBLIC HOSTING COMPANIES - JULY 15, 2016

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

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Valuation Of Public Hosting Companies - March 4,2015

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

GoDaddy IPO - Pricing & Valuation

Congratulations to the folks at GoDaddy who priced their IPO last night above the range at $20/share.  It should begin trading sometime later this morning. 

Assuming no exercise of the underwriter's overallotment option and taking into account the 26mm+ issued but unexercised employee stock options , $20/share works out to a traditional Enterprise Value of approximately 19x EBITDA (LQA), ~ $4.3bn.  (Please see this post for how we calculate Enterprise Value). 

Here is a link to some of our past valuation summaries.

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

GoDaddy IPO - Expected Price Range & Valuation

GoDaddy amended its S1 last night to include an expected price range for its IPO of $17-$19 per share.  At the mid-point of this range, the equity value comes in just above $2.7bn and, on a fully diluted basis, in excess of $3.2bn. The traditional Enterprise Value calculation comes it at more than 16x EBITDA, approximately 17.5x EBITDA if you include the dilutive effects of employee stock options (please see this post for how we calculate Enterprise Value).  We'll provide more details when the offering gets priced and begins trading.

 Here is a link to some of our past valuation summaries.

 

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 270 successful web hosting, ISP and related transactions and distributes a list of hosting and related companies that are

Valuation of Public Hosting Companies - March 17, 2015

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 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.

* - The financial data for most of the above companies is based on their press releases and is as of 12/31/2014. We will update the valuations when the companies make their SEC filings and more of the European hosters have released results.

 

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 270 successful web hosting, ISP and related transactions and distributes a list of hosting and related companies that are

Valuation of Public Hosting Companies - February 25, 2015

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 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.

* - The financial data for most of the above companies is based on their press releases and is as of 12/31/2014. We will update the valuations when the companies make their SEC filings and more of the European hosters have released results.

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 270 successful web hosting, ISP and related transactions and distributes a list of hosting and related companies that are

Valuation of HostEurope acquisition of Intergenia

Congratulations to the folks at HostEurope and Intergenia on their recently announced transaction. 

Information released by Oakley Capital indicates a transaction value of E 210MM and a run rate EBITDA of more than E 20MM putting the purchase multiple in the 10x or less range on run rate EBITDA.  Given the amount of overlap between the two companies, we expect that, post integration, the contribution margin to be very high making this a highly EBITDA accretive transaction for HostEurope further pushing down their effective acquisition multiple.

Oakley reported a 36% IRR on their Intergenia investment.

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