Acquisitions 1
3. High customer churn, even if the company nets the same quarterly customer growth as a low customer churn company. 4. Multiple brand names, meaning 5+ 5. Old equipment- This means a capital outlay for many buyers. 6. Lack of any contracts for larger customers. 7. Billing customers in cycles greater than annually 8. The owner is extremely important to the day to day operation of the business 9. Reputation.
I once heard, cPanel deals get a premium to the rest of the shared market and get a lot more interest. cPanel Linux and either Modernbill or WHCMS are the slam dunks, can you elaborate and give me your opinion as to why this might be the case?
Ease of migration, new customer acceptance and existing customer popularity.
From start to end, how long does an acquisition take?
If the buyer is focused, and the seller is organized, the process of acquiring a web hosting company should take no longer than 3 months, from initial talks to closing. I have seen this process take just 4-5 weeks many times for the smaller deals. Typically it should take between 5-8 weeks from the signing of the Letter of Intent to the deal closing. Having said that, if the process is started right before Thanksgiving, then the process can last longer because for the 6 weeks between Thanksgiving and New Years Day, there always seems to be an important team member either on the buyer’s or seller’s team which is on vacation (owner, attorney, accountant, etc.), so the deals typically crawl through the holidays.
It should be noted that before a LOI is signed, both the buyer and seller should brainstorm to think of any issue which could possibly surprise either party after the LOI is signed … and address them prior to signing the LOI.
Are there any specific services or ways hosting companies can alter their services or technical offerings to increase the overall valuation?
While the most liquid form of a web hosting company is a Linux, Shared, cPanel hosting company, I am not sure this is the smartest growth strategy to pursue going forward. I think it is too tough of an economy to turn any new customer down by telling them that you only offer Linux/Shared services. To continue to grow a business in today’s world, companies should be able to tell almost every new prospective customer “yes we can help you”, whether they are asking for shared, dedicated, VPS, co-lo, Windows, Linux, cloud, web design/ development/SEO/Internet marketing etc. Price the service right, and get the customer!
PART
M. Eric Furlow Furlow Consulting, LLC
Why would a hosting provider use you to sell or buy versus doing it on their own?
I have been assisting companies with M&A services in many of the telecom, wireless telecom and Internet recurring revenue industries for almost 20 years. I have seen these industries grow from their creation and infancy, through maturity and some into their decline. I have experience in the 4 major disciplines within M&A … mergers, acquisitions, divestitures and valuations.
With the recent technologies and marketing propaganda being focused on cloud computing, have you seen a decrease or increase in the number of shared hosting acquisitions taking place?
It is hard to determine what the cause of increased M&A in the shared space is, whether it is due to the evolution of the cloud space over the last couple of years, or the amount of time we have moved away from the 2008-2010 financial mess. There has always been a very liquid market for shared hosting companies, especially the sub $5mm deals, even in the financial crisis a few years ago because there are always buyers with cash-on-hand wanting to grow through small acquisitions.
The acquisition process for a small business owner seems scary, what advice can you provide someone considering this?
Just keep in mind, you can always say “no” to an offer. Hire a specialist who buys and sells hosting companies for a living. Also listen to what the reputable buyers have to say about your company after they review your information. If a seller hires someone to help them, listens to multiple interested buyers, waits for multiple offers, then only agrees to a deal structure where most of the money is paid at closing, then there is not a lot of bad things which can happen.
What I would recommend avoiding is trying to force a deal with a random buyer who approaches you asking if you want to sell the company. I hear this from time to time and my first thought is, what are the odds that this buyer is going to offer you more money than if you marketed the company and received offers from several buyers.
Something else to keep in mind, some owners put their company on the market to see what type of offers come in and to hear the buyer’s pros and cons of their company, then they take the company off the market and put it back up for sale 1-3 years later, sometimes after taking the advice of buyers and making some changes to the business.
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