On Tue, 03 May 2005 22:55:16 +0100, Karim <karim3411.DeleteThis@yahoo.moc> wrote:
> ...
> cheapesthosting.com has no plans of selling itself
what a pity - I'm in the market for another ASP host or two.
np - I suspect the sale would collapse at the 'due diligence' stage.
Which does raise the rather interesting question of how much a host is
worth. I'm not talking about mega-corps, but the far more common reseller
type maybe or with a private server or two running tens or hundreds of
sites.
Of those I've bought in the past, some I've been able to acquire for the
sum of their debts. The decision is simple - is the biz worth the debt?
However the recent, highly publicised (in this group), sale is at the
other end of the spectrum - the host in question is continuing to trade.
A situation that would considerably reduce the price I personally would be
willing to pay.
Coming back on track, most hosts (by volume) are resellers on a lucky
streak. Their (hosting) business has a value should they wish to sell up
and concentrate on more profitable activities.
But where to place the value? Hmmm a working guide in more traditional
ventures has been annual profit x a multiplier of maybe 3 - lets stick to
that average for the moment and hypothesise that a hosting business is
worth 3xAnnual Profit.
Well first we have the problem of actually separating out the hosting
costs and sales from the rest of the business - surely these guys can't be
paying the rent from what they get out of hosting? ok, so we work out the
figures and take a look further.
When you factor in cost of labour you find they're making a loss - no
wonder they want to sell - usually they don't know the figures, they just
know something isn't right.
Based on the calcs above they'd have to pay you to take the biz. ok
that's silly but you know what I mean.
So you know what your figutes are (I hope you do), your overhead per
account and fixed. Does that help calculate the value of the purchase?
Well it helps you calculate it's worth to you.
Another way to calculate value, if you have the figures, is to multiply
the accounts gained by your own cost of sales per account.
ok - one way or another we have a rough estimate of value. This is
probably the end of the story if the target has only a few tens of
accounts.
BTW: don't forget to factor in a figure for churn - anything from 10% to
50%. It's up to the purchaser to make that call.
Now, let's look at a bigger host, one with several thousand accounts and a
proven track record. Here we're not buying some business, we're buying a
business. Altogether a different proposition. As well as the
sales/profit figures your due diligence should identify the key players.
The purchase must be dependent on these folk remaining with the business
for at least 12 months - in fact the cash transfered should be dependent
on it as well as sales performance over that period. Further you need to
take their salaries and performance related bonus into account.
What happens next is dependent in part on what you've bought. Are there
any tangible assets? Contract obligations? Certainly you will have
discovered all this before signing the deal. The last thing you need is
to be saddled with 20 years lease rental on office space the other side of
town/country/globe.
If you've bought some business then you will want to assimilate the new
accounts into your hosting and billing structure as soon as possible - how
much time/effort will that take? If you bought a business then you have a
much bigger issue on your hands. Do you now run two completely separate
operations or do you attempt to merge them? Neither choice leads to an
easy road, good job you had the sense to tie those key players into a
contract - you have some work ahead.
So, how much is your business worth?
In any event, have fun.
--
Whatever you do - do something.<!-- ~MESSAGE_AFTER~ -->
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