We recently purchased a small hosting company -
We did this as an experiment to determine if this was a reasonable avenue for growth.
Basically, this is what we came up with (this may not be the right way to do it, but this is how we worked out the deal)
Transaction
-each customer is worth 3-4 times their monthly revenue
-selling host should take some of the risk in the migration, so x% paid upfront and x% paid after 30 days on a sliding scale based on % of customers that were maintained
-we would be migrating all customers to our servers and our control panel and cancelling the existing dedicated account
Effectiveness
-it wasnt as clean as we would have hoped
-we did maintain 80% of the customers past 30 days, so we feel the buying price turned out fair
-selling host was excellent, without his help, it would not have been as successful
Things to consider for any such transactions in the future
- control panel current customers are on (if its not the same control panel as youre using, the migration costs and risk of losing customers increase)
- plans the selling host has established (many times a host is selling their business because their plans were unrealistic and as such, were no sustainable - this creates an expectation for the customers to receive the same resouces with a migration)
- level of involvement of selling host (I cannot stress enough the importance of this aspect - this alone can make or break a deal)
Conclusion
Buying a hosting company IS an effective means of growth. I think that any company entering into such a venture should be very selective about which company to buy and which person to deal with.
If the selling host is willing to be involved and share the risk, I feel 3-4 times the recurring revenue is fair. If they arent, then probably alot less.
Obviously many factors not addressed here, but hopefully this is a good starting point.
