Hosting Business Valuation

[hellsa]

Hi,

I'm considering buying a hosting company and I'd like to get a sense of the multiple of earnings that small (100 or so clients), non-public companies tend to go for. I know that EBITDA is not the only thing to consider, that an analysis of the income statements is necessary and that multiples are not necessarily accurate predictors of a company's true value but I need a starting point.

Any help or resources you can point me to would be appreciated.

Thanks!

 

[Blue]

There are many factors to consider.
The main one I would consider is the renewal rate of the clients.

There are lots of fly by night operations out there that promise the world and gain dozens or even hundreds of clients but have no retention rate.

I would say that, depending on the client retention rate, a hosting company is worth 3 months to 6 months gross revenue.

That is just for clients. Other things such as software, websites, domain etc. have to be taken into consideration as well.

 

[ldcdc]

Customer lifetime value would be the key for me, but it would be hard to estimate accurately if we're talking about a very small business with little history. This higher risk would result in a diminished offer.

 

[rebelnet]

here is the main problem, and take it from a company that has purchased 5 hosting companies in 4 years. - The market value will be different from company to company

typically in the hosting business today around 7/8 months revenue is a great deal, however, it could go at 1.2 times yearly revenue -

also the smaller hosts go for more money because there is always somebody who will over bid without any clue -
your goal is to get the accounts, at the best deal you can, with what you can afford!

 

[bobchrist]

You can evaluate the cost checking their track record of profit & loss account, customer base and future profit making ability.

 

[redhotservers]

here is the main problem, and take it from a company that has purchased 5 hosting companies in 4 years.

Can you advise on how you purchase the business and move all the accounts?

How do you trust the other company?

 

[HostingAmerica]

Redhot: you do not trust the other company. Write a contract and have legal council advise on it.

Regarding valuation: six months collected revenue is an oft-used valuation tool in the hosting world. Regarding infrastructure purchases, figure in depreciation over three years for servers and you should be all square.