Hi,

We are considering selling the USA arm of one of our brands (no names will be mentioned at this stage obviously - and no, its not www.49pence.com :))

There are approximately 200 clients, with revenue as follows:

Monthly $2700
Yearly $4400

Total revenue per annum is around $37,000

Clients are hosted on Windows 2000 & RedHat Ensim platforms, bandwidth usage is averaging between 1.0 and 1.2mbits. The reason for the sale is to raise capital to concentrate on the UK market with.

Serious offers only please, no time wasters.

Just sent this email out to some interested parties:


The majority of the customers are Ensim, about 85% I think. They are currently spread over 6 servers, 3 for resellers and 3 for single users. The servers are all currently located in the USA, and this is one of the reasons my client wants to sell off this arm of the business. The servers are low spec machines, P3-1200, 512mb, 60gb. The single users machines average 300-400kbits and the reseller servers average 100kbits. The machines have been kept 'low density', and 2 servers would be adequate for them all. There are no Windows resellers, and the Windows clients are using Hosting Controller 1.4

Out of the 200 clients, only a handful (say 5) are not paying per month, the vast majority are monthly payers so obviously you would get instant revenue from the purchase. My client is currently running the business at 80% net profit.

The sale will not include any web site or technology associated with the business. The servers currently in use can be leased out until they become end of life, for $1250 per month. Additionally, there is currently an in-house ASP driven support ticketing system that can be purchased on negotiation.

There is no asking price, it will be sold to the highest bidder. My client doesn't want to split the business into chunks to sell, and would only like to sell the whole lot. This will be a formal business transaction, and UK law will apply to the transfer. There will be signed contracts on both sides.

The majority of the clients know what they're doing and keep quiet, but obviously there are a few inept ones who need support.

The arm is very profitable, but the company in question is trying to raise capital at the moment by offloading assets like this.

I'll buy it with...

-my 2 cents

sHosts... you are one funny guy.

Good Luck!

;)

thanks

Monthly $2700
Yearly $4400

Total revenue per annum is around $37,000

^^ I don't understand. Isn't yearly and 'annum' the same thing? or is each client paying $4400 a year? I'm too lazy to get out a calculator.. :)

Would you be willing to sell individual clients or would this be a package deal only?

2700x 12 = 32400

32400 + 4400 = 36800

36800 is approximately 37K

QED

Nick

I think it's quite obvious:

12 x 2700 = 32400 (total fee for monthly based clients)
+ 4400 (total fee for clients that pay anually)
_______________

$ 36800 (total yearly revenue)

EDIT: Darn, I was too late :D

oh yes...

Man I feel stupid now! I didn't read that properly. Thanks for explaining guys. Carry on folks! :blush: :blush:

edb49,
what is your approximate net revenue per year for these 200 clients.........

thanks

How much are you aiming to get? Also are the server(s) for sale also?

I might also be interested in this..

I am looking to see what price your looking for and that you will sign something so as you wont be my competition in 6 months and steal all your previous customers back..

just_kp,

agreements not to compete are virtualy unenforceable with physical business with real storefronts, let alone web hosting companies. unless there are intellectual property rights involved or the former owner emails all of his former customers you are SOL on that one. (not offering legal advice - ask a lwayer).

Please see the original post, been some additions.

Could we have a ballpark figure or current bid.. ?

No one has named any figures yet, but I'm sure you can appreciate it would be quite a high figure that only a small %age of this board would be interested in.

Thats why i was asking you to throw it open by naming a very rough price guide.. what do you value this sale as to you ?

First bid at $5000

Second at $7500


Third at $24000

I was ready to bid in the range of $8000. I firmly believe that 24k is ridiculous. My bid is low and I would probably go higher (still not sure how interested), however 24k is obsurd. That's $120/client. If that included a kick-ass billing/management/techticket system that would be one thing...

The fact that the majority of the customers are on a monthly basis is highly preferable. Does anyone know what kind of continuation rates people have experienced from past purchases? Obviously it depends on the quality of service, however there is a high possibility of customer upset from being transferred like that. If anyone has that kind of data... or if anyone knows of past price/client values... these kinds of things are always hard to peg.. I've found some guidance some places but nothing very helpful.

Of course if server costs and labor weren't an issue 24K would be a steal...
Nick

:eek2:

Well, good for you...

Latest offer 26k

Greetings:

“Total revenue per annum is around $37,000”

“My client is currently running the business at 80% net profit.”

“The servers currently in use can be leased out until they become end of life, for $1250 per month.”

$1,250 per month = $15,000 per year.

$37,000 gross revenue per year
($15,000) less direct cost of servers
======
$22,000 gross margin (not including any other direct expenses)

$37,000 x 80% = $29,600.

Can you explain how your client is running at 80% net profit (gross revenues – cost of goods sold = gross margin – operating expenses = net profit), when the actual appears to be 60% PRIOR to operating expenses and other known (unknown to us as not in the post) direct expenses?

Thank you.

How much net cashflow did you generate in the last 12 months? Deals are getting done in the following manner:

1 x Cashflow Paid upfront
1 x Cashflow Paid at the end of 12 months based on customer retention
=
2x Cashflow.

If you are interested in selling based on these metrics please PM me. We have bought 14 hosts in the past 3 months with these metrics and I suspect there are 14 more that would like to sell out.

Totally UNPROFESSIONAL..These guys have not responded to any questions I have asked. I have asked when the auction will finish no reply..I have asked is there a buying price. No reply. I am glad I am not their customer or they would have problem with me...

Same here... I have gotten no reply. :(

Greetings Alexmuse:

"1 x Cashflow Paid at the end of 12 months based on customer retention "

Why would a company selling have to back on your company's ability to retain clients in order to get paid?

30 to no more than 90 days is common for deals where churn is of a concern. After that time, the onus is on the company buying the customers to keep them happy.

Just a thought.

Thank you.

you're paying 2x annual cashflow??

how can you operate if you don't see a dime for 24 months? I understand you can take the purchase price and amortize it over 4-7 years to make it look good on the books. In this industry, I would call that a little risky by betting that the customer is going to be with you for 2 years before you see your first "real"dime.

Maybe I'm missing something..


Barry


[QUOTE]Originally posted by alexmuse
How much net cashflow did you generate in the last 12 months? Deals are getting done in the following manner:

1 x Cashflow Paid upfront
1 x Cashflow Paid at the end of 12 months based on customer retention
=
2x Cashflow.
[/QUOTE

Greetings Barry:

"you're paying 2x annual cash flow??

How can you operate if you don't see a dime for 24 months?"

1. He only pays 1x annual cash flow up front (at the time of the sale).

2. The other 1x annual cash flow is only for those customers who remain after one year (that's my questioning point since after 30 to 90 days, it is the buyer's job to keep customers, not the sellers).

Furthermore, cash flow DOES NOT equal gross sales. If they are going off a true cash flow model, then cash flow may not even equal gross margin <smile>.

Now, if you are paying on pure cash flow and the cash flow remains the same (pre sale and post sale), then the sale pays for itself (there is no money lost or won except potentially for any labor involved in the migration).

However, if you are paying for cash flow based on their cash flow (the seller) and you (the buyer) have a more optimized cash flow then you could be making a profit every single month over the buy out time period.

Thank you.

In most traditional businesses it is common to pay 3 to 5 times cash flow. The tech sector is depressed and so are the valuations, hence our offer of 1 x current yearly cash flow plus 1 x yearly cash flow paid in 12 months (see earlier post for explaination).

Someone might pay 2 times cash flow for the following reasons:

1. They have available cash and are looking for returns greater than the bank is offering.
2. They have access to debt and the business will generate enough cash flow to cover the debt burden while paying a nice dividend.
3. They can operate the business more efficiently than the current owner and generate even more cash flow than the present owners.

If you are seriously confused, please PM me. These guys have not responded so I assume they were not serious sellers.

Sorry, my mistake. I was making the assumption that CASHFLOW=GROSS SALES. I misspoke. Of course if you have economies of scale going for you, then yes, paying that kind of $$ out based on their NET might be in order. This is assuming that CASHFLOW=NET ;).

Barry


Originally posted by dynamicnet
Greetings Barry:

"you're paying 2x annual cash flow??

How can you operate if you don't see a dime for 24 months?"

Furthermore, cash flow DOES NOT equal gross sales. If they are going off a true cash flow model, then cash flow may not even equal gross margin <smile>.

Greetings:

"This is assuming that CASHFLOW=NET"

Cash flow does not always equal net even when you are on the cash basis of accounting.

Income Statement
=============

Gross Revenues

- Direct cost of those revenues (often referred to as COGS -- Cost of Goods Sold)

= Gross Margin

- Operating Expenses

= Pretax profit

- Taxes

= Net Income / (Loss)


Cash Flow (very basic flow)
=======

Starting Cash

- Cash spent

+ Cash coming in

= Ending Cash


In terms of looking at monthly cash flow, it should be considered that not all invoices that went out for the given month are paid in that month; and, there may be disconnects (mis matches) between sources of revenues and their costs.

Those disconnects can be positive (you are getting cash much in advance of your paying the sources of the cash), or they can be neutral (you get your cash, you pay out cash at the same time), or they can be negative (you pay the money to generate the cash, and then (later) you get the cash).

What you may want to do to understand some of this better (you probably know it, if you see it) would be to generate some monthly income statements covering a year, and generate cash flow statements for the same periods (Quickbooks, PeachTree, etc. all have these reports). Then compare and also see the impact on your balance statements.

Now, getting back on track... Did anyone notice the lack of response to the question to AlexMuse about why the selling company is responsible for the buying company to keep clients happy for a complete year?

Thank you.

Thanks for the econ101 lesson. :) Even though I knew this...( I was braindead in the past few posts), I think it's good that others on the board see this information.

This is what message boards are all about

Thanks a lot for post!!

Barry