Purchasing a competitor

Artashes

Artashes

Administrator
Staff member
If you were to purchase another web hosting company:

1. What would be the key aspect in evaluating and making fair market offer?
2. How would you approach the migration of clients and merger of both companies?

Best,
Artashes
 
1. ROI Basically, what does the company make after all expenses are paid.
2. It would really depend on the company being purchaed. if it was a successful brand with good name reconition, I do not think I would merge the companies. Sure some things on the backend might be merged to make operation of the new company more efficent or profitable, but these would be things the clients would not really notice.
 
Galaxy-Hosts said:
2. It would really depend on the company being purchaed. if it was a successful brand with good name reconition, I do not think I would merge the companies. Sure some things on the backend might be merged to make operation of the new company more efficent or profitable, but these would be things the clients would not really notice.
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I understand where you are going with this, however, wouldn't you devaluate your own brand by not merging into a single more recognizable name? Marketing-wise, it would also be more cost effective to promote one company rather than dividing the budget to promote two instead.
 
You should make a press release about the merger and your future program about the new changing you're going to bring forth which would be useful for the clients after merger.
 
bobchrist said:
You should make a press release about the merger and your future program about the new changing you're going to bring forth which would be useful for the clients after merger.
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Thank you for your advise, bobchrist. It is definitely on our to-do list. :)
We'll make it official in the next 2 weeks or so, as we still have to sort few things before.
 
Marketing-wise, it would also be more cost effective to promote one company rather than dividing the budget to promote two instead.
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It depends. Sometimes two brands give you the ability to get ~twice as many customers with a double advertising budget, while doubling the advertising budget and focusing on a single brand might not get the same results. That's when the advertising venues are starting to run scarce, and you've got s huge advertising budget. Midphase, Bluehost, are companies that own several brands, and that enables them to get listed twice in some directories/top hosts sites.
 
ldcdc said:
It depends. Sometimes two brands give you the ability to get ~twice as many customers with a double advertising budget, while doubling the advertising budget and focusing on a single brand might not get the same results. That's when the advertising venues are starting to run scarce, and you've got s huge advertising budget. Midphase, Bluehost, are companies that own several brands, and that enables them to get listed twice in some directories/top hosts sites.
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That's an interesting take on this. I presume that would also minimize risk and balance things out in case something goes wrong and lots of negative feedback starts to flow against one of the brands. At least it won't tank your whole company, but just a part of it. Positive thinking, isn't it the best? :D
 
I agree with both of yo (Art and ldcdc). That is why I said it really depends on the company being purchased. It would also depend on the strength of your existing brand. I would perfer two very strong brands to one. But if the company being purchased does not have much name reconition and you are mostly purchasing it for the clients, I would merge it into the existing brand.
 
Galaxy-Hosts said:
1. ROI Basically, what does the company make after all expenses are paid.
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Is there a known standard average of what ROI is like in this business? Are these industry numbers published anywhere, like they have for steel, restaurant, retail businesses?
Perhaps the best way is to find as many publicly traded companies and figure their ROI by yourself?
Galaxy-Hosts said:
But if the company being purchased does not have much name reconition and you are mostly purchasing it for the clients, I would merge it into the existing brand.
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That is where the complication kicks in. Since it is impossible to predict the reaction/behavior of clients, do you have to calculate in the risk of losing clients? Those who become unhappy with the company being sold, and those who would leave to another provider. I always wondered how companies handle those things that are out of their control.
 
I do not know of any known standard for ROI, but it is fairly easy to calculate. When purchasing the business find out, and verify, the yearly gross income (itemized clients per package) and the expenses (itemized by category). Gross minus expenses = net. After that you need to figure a few clients will not stay. From my experience and talking to other hosts this is usually a small percentage (I would say less than 5%). Then you have to see if you can up the earnings. For example you could move the account to another server. If you can raise the earning you may or may not want to include when calculating your bid price. I do not, but I do know I have some cushion when bargaining. As a general rule I would give one years projected earnings, that way I could double my money in 2 years.
 
If you're looking for a general guideline of pricing the company - a good rule of thumb is probably 8-10 months of sales. Thus, if the company makes $1000 per month, then I would value the sale price at $8-10k. Of course, this number will decrease or increase depending on additional factors such as brand recognition, customer prepayments, etc.

Dave
 
I think it's all about the customer base. It all should be judged upon the number of customers and their plans. Chances are you will have to offer them the same plans, otherwise many may pack up and move else where.

Merging isn't too tough, I'd just keep the same server and just get the purchase information changed. Members hate to be moved around etc...
 
dnstevenson said:
If you're looking for a general guideline of pricing the company - a good rule of thumb is probably 8-10 months of sales. Thus, if the company makes $1000 per month, then I would value the sale price at $8-10k. Of course, this number will decrease or increase depending on additional factors such as brand recognition, customer prepayments, etc.

Dave
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8 to 10 months? That's a bit too short I find for the business you worked so hard to build. I thought the valuation of about 2 years is appropriate?

BundledTech said:
You want to make sure there is no rivalry between the too competitors , I mean like serious competition.
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Not sure what you mean...
 
8 to 10 months? That's a bit too short I find for the business you worked so hard to build.
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I didn't keep an eye on the evolution of this, but I've found that about 12 months was often the estimate, unless there was a recognizable brand in the mix, or a relatively high markup market.
 
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