22,000 hosting customers sold for $2.6 million

H

handsonhosting

New member
Maybe I"m reading the article wrong, so could someone else have a read through the announcement and let me know if what I'm reading is REALLY what I'm reading?!


http://www.thewhir.com/web-hosting-...res_Approximately_22000_Web_Hosting_Customers

Basically what I'm seeing is that a company (local.com) purchased another hosting company for $2.6 million in cash. On average, the 22,000 customers were paying $35/month for hosting, or $770,000 revenue per month.

So after approx 3.3 months of acquiring the new customers, the purchase price would be paid off ($2.6 million divided by $770k).

Did someone just win the lottery on this purchase deal? How will this degrade in value affect other businesses looking to sell their clients. Are people now going to be selling their business for only 25% yearly revenue?

Please tell me I read this wrong - it's a HUGE devaluation of this business if it's not.
 
There can be any number of reasons why this deal closed as it did. Quite often transactions like these transpire because the seller was facing bankruptcy. Don't know enough about larosspartners to comment either way, but I don't envision this as devaluing the market. I still see stable providers with a 1 to 1 enterprise value, but distressed providers continuing to struggle approaching anything near that.
 
You are reading it right, however, they are not really sharing what the costs are, including support costs, etc. I am sure $35/month they are paying isn't all profit.

That brings another questions I've had on my mind for a long time - what is the industry profitability margin average? If we get there, we'll approximately know what the acquired company was netting.
 
Steve-Hostirian said:
There can be any number of reasons why this deal closed as it did. Quite often transactions like these transpire because the seller was facing bankruptcy. Don't know enough about larosspartners to comment either way, but I don't envision this as devaluing the market. I still see stable providers with a 1 to 1 enterprise value, but distressed providers continuing to struggle approaching anything near that.
Click to expand...

Good point. Take recent acquisition of imeem.com by MySpace - they bought the company (16 million accounts - good chunk of those are premium paying accounts) for $1 million, since imeem.com had too much debt.
 
Oh definitely agree that there are things not being said. It appears that the original selling company is still remaining in business with the possibly to sell off another 10,000 customers later, so it could have been a money issue on their end, but I was just shocked to see something sell for that low (or at least what I think is low).

For the profit average, I guess there's MANY factors that come into play on this. The hardware being used, the amount of staff employed and the salaries of management along with marketing for the future. It also depends on the price of the accounts and the type of accounts. It could be $2.00/month per client on a $5.00/month account or it could be $20/month per client on a $35/month account or $100/month per client on a $175/month account. I don't know of any way (myself) to put a price on how much profit is the industry average.
 
Artashes, that company must have had a TON of customers.

I can't see myself selling my company unless some absolutely outrageous offer was made... and in that case I wouldn't sign a non-compete or whatever, and would start right away on another brand from the ground up.
Why sell? I mean, if it is making money, keep it going and micromanage if you have to. Auto-host. :D Just pay employees to take care and get good people in management to oversee things.
I know, I know.. all this is easier said than done.
I guess sometimes it is easier to just cash out.
 
HJ-Andrew said:
I can't see myself selling my company unless some absolutely outrageous offer was made...
Click to expand...

Coming from someone who has the name "jackpot" in company name, I totally understand. :devil:

On a more serious note, I agree with you. It is easier to make money when you have money (especially in case of bigger companies that have consistent growing turnover). A successful hosting business (and a brand on top of it) with great management/staff running it, does not take little time to build, so selling it without taking into account the value of that is silly. I am also on the fence with a non-compete clause. In such a competitive industry, there is little value in such a clause, unless personal relationship between company owner and his clients are established.

Btw, cool branding/concept, Andrew.
 
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