What are the guidelines on buying an existing hosting business.?
I am Currently Interested in buying an established hosting company and want to make sure I don't leave any stone unturned.
The first question I asked the seller was - Why are you selling your business?
I have not posted the compay name here for privacy

What are the pitfalls when buying a hosting business?
What should I do to protect myself and my investment?


Anyone out there gone through this type of acquisition?

Any help will be greatly appreciated

Thanks All

I think first of all you should ask yourself, why you are buying the business? What is the reason for it? Maybe it is better to start a new one and invest your capital in the marketing campaign for the new company?

Good point. I did ask myself that question. I currently run an existing hosting company which is doing quite well.This particular company appears to have a solid customer base, good accounting system and records. The website also has a good PR and good amount of traffic. One of the reasons am Interesting in buying is that the deal looks good, and the business looks solid on the surface. I can easily recoup my investment within a year, plus my existing operation would have grown as well.

My biggest concern is making sure the deal goes according to plan and am not faced with any surprises after the sale is complete.

What are suggestions on what I should look for? Are there any acquisition experts out there :)

I worked briefly in the mergers & aquisitions department of a major investment bank.

I recommend listing the company's assets and the price range you are willing to pay for each - customers, traffic, content, infrastructure. A good aquisition target should have demonstrated and consistent earning power. I would request a statement of income for the past 6 months. Do your own analysis, and keep your eye on the downside potential!

If you are doing this purchase online, of course be sure to confirm the seller's identity through public records.

Hope this is helpful.

Jonathan B. Maher
Founder

Also work out a payment system that allows for a partial payment now and reset held in escrow for 3-6 months....that way if something DOES pop up. you have some recourse.

customer migration is the biggest pitfall!!! if not done right u will end up w/ no customers.

We have made several acquisitions of hosting companies over the years and I must say the BIGGEST problem I have found is at the time when you take over the business they say they have X amount of clients... Some of those X are pre-paid for a year already and you may not see any money for months from these people.

With that in mind you buy the company and migrate over everyone's accounts being as careful to not crate any service interruptions as possible.

When billing time comes around for some of these pre-paid for a year customers you will discover that any of the following may have occurred:

- Domain Name expired and was not renewed by the customer.
- Customer simply abandoned the account (no longer used/needed it).
- Customer was unaware of the acquisition (some people never check their email or the host you bought gave you a wrong address for the client)

This means lost revenue from your original plan you had when you bought the other company out with the hopes that you would see a planed return.

I am not saying this is a major major deal but it is something look out for and something that personally makes me miffed.

The last company we bought out who was a small company of only 200 clients out of those 20 were dead accounts or whatever at the end of their year hosting that they pre-paid for. It was a little disappointing but all you can do is shrug your shoulders.

Anyway hope this helps you a bit, good luck with the acquisition!

Clint

I would strongly advise to have following clauses in the contract

1. Staggered payment schedule which is dependent of the quartly projected performance by the owner. This will save you from companies who are selling because they know they will be in a big hole next month or so or companies who have done something fishy to make theire financials look better than they actally are.

2. Get the founder/owners work for you at least for next 6-12 months. You will really need some of their hidden knowledge that only they would have to succeed in their business.

Happy hunting!

Subodhv