Just wondering what the good WHT people think about this - it has been proposed to us that a host shutdown and tell their people (600 have been actively billed, 2100 not) that they need to sign up with us. We pay $150 per signup and give a $75 k retainer (retainer is whittled away by the signups - we'd need 500 signups to use up the 75k. They charged $25 a month for rather meager allowances - most would come to a $11/mo plan most likely...Yea, nay, reasons?

Originally posted by marksy
...it has been proposed to us that a host shutdown and tell their people (600 have been actively billed, 2100 not) that they need to sign up with us. Why don't you just buy the company and keep billing the 600 customers in good standing and extend a special offer to the freeloaders, if they accept fine, if not you discontinue their service.

If the business has been handled that sloppily and there is no automatic conversion, but rather just a suggestion to sign up with you, odds are overwhelming you will never get 500 sign ups. This is really a strange way to handle this thing. Either you are buying the accounts and can automatically convert or not. Also, make sure you have a non-compete. Personally, I have purchased 7 hosting companies with more in process and would never touch a deal constructed like this one.

Do due diligence. Be prepared to walk. Make your offer...don't just accept the buyer's. Also, I would never pay $150 for an $11/month account. Six months of revenues the market maximum (on a all payment upfront deal), so you would have to get $25/month out of them or pay less to make it a sound deal.

Current market is 1-1/2 to 2 times monthly revenue. For example if the company is billing $10K a month they're buy price should be $15K to @20K depending on how much you want it.

Pay no more. Acquisitions are not a simple thing and you never really know what you are getting for your $$$.

Good luck.

I think there's alot more to concider besides the monthly revenue.

But what do I know, I never bought a company.

:dunce:

Urk5 I find your going rates interesting, are these from experience. Why would a company making 10k a month sell it fo 15k. If you were making 10 million a month would you sell for 15 million. Do companies really expect to make their money back within two months?
Why would you sell somthing that has taken years to build for not much more than it makes a month?

1.5 - 2 months revenue? You're joking right?

Maybe for the 16 year old who's in over his head on support and looking for a quick way to bail out of his unsustainable $3/month business model ASAP - but hardly a figure that any reasonable business owner would settle for. Take a look at multiples of annual income for a more practical figure.

Let me put it this way: if you're willing to sell your hosting business for even 3X your monthly revenues, PM me immediately with details.

Thanks

Brandon

Yes, if anyone wants to sell me something in which I will be making 20k a month within 2 months let me know.
I would even settle with less than 20k if I only had to work a month to get it back.
Please let me know where you find these business's we could all make a fortune. Buy a company turning over 10k a month for 15k.
Invest: 15k
Turnover for year: 120000
Wow what an investment.

Originally posted by cbtrussell
1.5 - 2 months revenue? You're joking right?
....
Brandon

This is actually a very realistic price. You must take into account the fact that it is based on total revenue not net profit (which is usually MUCH lower).

When considering all of the costs (especially the support costs) this turns out to be a very reasonable price for a seller. Also, the buyer is taking on the huge risk that many of the customers (potentially all) could choose to go with another host as soon as they learn of the sale of the company. This would leave the purchaser buying something that actually costs them money.

Of course, each individual sale must be looked at separately and this is only a guideline. Factors such as the quality of the website and domain name being sold as well as the price and features of the current accounts are also major factors in determining a fair price for a company.

I hope this clears things up a little. I hate to see someone like Urk5 being jumped on because of a misunderstanding.

David Delisle

Hi David,

No doubt there are many factors involved, and as I alluded to in the post above, I'm sure things behave a little differently among all the bottom feeders who have 10% margins and 50% turnover every 6 months.

On the other hand, for a well run, sizeable (hosting) business with decent margins, I'd be willing to pay better than 12 months net income (all things being equal of course - this is a complete generalization).

This is significantly more than 2 months' gross income... and if you're running a hosting business where 2 months gross = 12 months net, I believe you're probably in the wrong business. (not YOU David, rather the reader at large). Or maybe not... but that's not a business I'd want to be saddled with.

Finally, the swap itself plays a large role in the deal's overall success. If properly handled as an COMPANY acquisition where you don't shake too much up in the initial period, you stand a far better chance of keeping those customers than if it's positioned as a CUSTOMER acqusition, IMHO.

my $0.02,

Brandon

Current market is 1-1/2 to 2 times monthly revenue. For example if the company is billing $10K a month they're buy price should be $15K to @20K depending on how much you want it.

Not sure where you heard this. I have not seen anything offered in terms of monthly revenue. There is just too many variables from month to month. Valuation is based off of yearly - not monthly. Your 1 - 1.5 is correct for yearly. ISPs are at 1x currently from what I have seen. However these are arbitrary. Look at the Micron and Hostpro deal a while ago. It was like 10x.

we got an email about six months ago offering to buy hosting accountas at 1 to 2 x monthly fees - I wrote back to the guy and offered him an instant profit on any he got for this price, funnily enough never heard from him

I would say that you'd be better off to just buy the company and continue billing the customers. I mean if they're already paying a good rate why not just keep them on it and just offer a lower rate so they don't think you're taking advantage of them by charging an arm and a leg. I'm sure you'll have some people that will want to stick with what they have. Another thing to consider is that they may not want to signup somewhere else because they think moving is a hassle.

It is an interesting proposal though.