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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.

Expanding your business through M&A

We recently gave a presentation on M&A at a customer conference for a large Hosting Industry vendor. The slides turned out to be pretty complete so we're reposting!

Please feel free to contact us if you have any questions or comments.

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.

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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HostingCon 2016 Events

We will be in New Orleans at #HostingCon2016 this month (July 24-27th.) HostingCon is a conference and trade show for the web hosting and cloud community and we're looking forward to seeing everyone once again this year! Some of our events include;

Sunday at 5pm is the HostingCon Game Show. Aaron Phillips of #cPanel is hosting a trivia contest and Family Feud game. The winning team gets dinner at Shaya, the James Beard Award winning best restaurant for 2016!

On Monday at 10am, join us for the panel, "How Service Providers Can Raise Money for Business Growth". The focus will be on financing tools available to small to mid-sized companies including options such as SBA financing and leasing.

Tuesday at 9am will be an Acquisition panel with some of the big buyers in the industry focusing on how they evaluate companies and things sellers can do to help their valuations.

Please let us know if you'll be coming as we'd be happy to get together.

Hillary & Frank

 

 

Washington & Encryption

David Snead, co-founder of the Internet Infrastructure Coalition (i2C), and I went to Capitol Hill this past week to lobby on Encryption issues.

The good news was that the Feinstein - Burr legislation was generally thought to be ill-conceived and not going to pass in its current form.  Given the strength of the comments we heard, I got the sense that they had been getting a lot of negative comments on the legislation from different parts of the debate. Unfortunately, the discussions did indicate there was still room for consideration of similarly troublesome legislation in the future.  If you are not up on Feinstein - Burr I recommend this Tech Crunch article.

I think most also recognized that breaking encryption in some manner was not really an option and they wanted to try and find other options to help law enforcement deal with encryption.

In the interesting news camp, there were a number of comments about developing rules to allow the law enforcement, under a valid court order, to hack (or hire hackers to hack) encrypted data. 

The concerning news was that despite making comments about how they recognized that breaking encryption was a bad idea, several commented on the need for both sides to compromise.  How we compromise without breaking encryption is a mystery and a concern that they don't quite get it.

A final note regarding the i2C. These lobbying trips are one of the great perks of being an i2C member and I encourage folks to join the organization and its fight to minimize disruption from ill-conceived government actions.  The current fight on encryption is a hugely important one and I encourage everyone to join in.

Cheval Capital Advises Melbourne IT Group on the sale of their International Domain Name Business to Tucows

Congratulations to the folks at Melbourne IT on the sale of their international domain business to Tucows.  Cheval advised Melbourne IT in the sale. 

Melbourne IT Group is a publicly listed company based in Australia. Their Small and Medium Business Division is Australia’s largest domains and hosting business, providing service to SMB’s under the Melbourne IT, WebCentral, Netregistry, and TPP brands.  Melbourne IT’s Enterprise Services Business Division is Australia’s leading software and cloud enabled and services business, operating under the Melbourne IT, Outware Systems and InfoReady brands. 

Frank Stiff, President of Cheval Capital commented on the event, “We were pleased to have been able to assist Melbourne IT with this transaction. Melbourne IT’s international domain name business, with its 250 global resellers across the USA, Europe and Asia, is a unique asset and was an excellent opportunity for Tucows to acquire a loyal, profitable base of resellers that has the same core needs as their existing wholesale customers.”

 

 

 

 

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.

Year End Hosting M&A Update

We want to thank all of our clients and colleagues for a great 2015.  We were fortunate to complete a record 40 transactions in 2015.  These transactions included a broad mix of sizes & types of businesses and a number resulted from the vibrant IPv4 transaction market (now that the registries have exhausted their IPv4 supply.) We are now up to 316 hosting and related Internet services transactions since we first got started in the space in the mid 1990's.  Our M&A experience in 2015 does not appear to have been unique.  M&A activity in the hosting and co-location segments was at high levels during 2015 with the number of transactions and transaction values exceeding 2014 levels (including co-location.)  

During the year a number of trends caught our attention that we thought might be of interest.

Vibrancy of the Industry

The Hosting Industry had another great year in 2015. Despite its very large size (~$70+bn), the industry grew at an estimated 20% rate from 2014 to 2015.  The highest percentage growth rate was in the Platform as a Service sector (~29%), with the largest dollar growth rate in the industry's largest sector, Managed Hosting. This segment posted an estimated growth of $5.6bn or a 47% share of new industry revenues added. Growth however, was not evenly shared across companies and it is does appear clear that overall growth is decelerating. 

The drivers of growth continue to be well understood. These include;

  • Increasing complexity is driving companies to outsource existing services and expand their need for new services;
  • The economies of scale that service providers can achieve make their offerings attractive in value terms; an
  • Companies like the convenience of a single vendor.

 Major Industry Trends Remain Intact

Last year we highlighted some trends that had recently emerged and represented a departure from past experience. These trends continued into 2015. Notably;

(1) The large, non-Amazon, cloud providers continued to gain workloads and revenue at high rates. The business models for these newer providers have gained traction and while it appears that Amazon will continue to dominate the space for the foreseeable future, these newer providers are increasingly competitive. Our expectation is that the continued growth of Amazon, Microsoft, IBM and Google will have an increasing impact on the economics of hosters in all segments.

(2) The rationale for M&A transactions has expanded sharply from consolidations to a much broader mix including products/markets/capabilities; and

(3) Historically commodity oriented providers have been adding features and services to create differentiation and move out of the commodity area.

All these trends continued, if not strengthened in 2015, and we see no reason why they won't continue for some time.  There were also several additional factors that caught our attention during the year;

(4) The mid-sized providers, those larger than $10-$15MM of EBITDA, have been getting bought out over the last few years and we are headed for a bar-belled like space with mostly large and small providers but few mid-sized ones.  While we don't expect all of the providers in this range to get bought out, and some new companies will grow into the range, we do expect this trend to continue. For companies in this range, that means a very attractive supply/demand environment when the decision is made to exit.

(5) We have been seeing more highly specialized companies emerging.  These companies seem focused on providing a single, highly specialized service.  The recently emerged Dispel.io and their Security as a Service being just one example.  The expanded M&A rationales (#2 above) appear to be feeding supply/demand for these types of companies. 

We hope this has been of interest and if you have any questions please contact us.

Best wishes for a healthy and productive 2016

Hillary Stiff & Frank Stiff

Cheval Capital, Inc.

January 11, 2016

Congratulations to the i2C

Congratulations to the folks at the Internet Infrastructure Coalition (of which we are a member) for the success of their 2015 Fly-in on Capitol Hill. (News, pictures and tweets here.)

The Internet Infrastructure Coalition supports and represents those who build and operate the nuts and bolts of the Internet. Founded in 2012 by a diverse group of Internet infrastructure companies, the coalition seeks to give the industry a voice within our Government and other public policy forums.

Hillary Stiff Speaking At HostingCon Global

Hillary Stiff will be speaking at HostingCon Global in San Diego on July 27.  Her panel will look at the changes in Hosting M&A in 2014 and 2015 and the trends that have been building to cause these changes.  Panelists include Ditlev Bredahl of OnApp, Liam Eagle of 451 Group, & Ted Chang of GoDaddy.

Please let us know if you will be attending as we'd be happy to get together.    

2015 HostingCon M&A Panel; Hillary Stiff; Ditlev Bredahl; Liam Eagle; Ted Chang; Cheval Capital

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