Web Hosting Talk : Web Hosting Main Forums : Running a Web Hosting Business : How to value a hosting company

[snaphost2000]

We are looking to place a value on a web hosting company and would like some real world information regarding how this is normally done.

If a web hosting business has say 1000 virtual web hosting customers paying monthly and quarterly and monthly revenue ranges from $10/mo to $50 a month, how would one determine what to sell/buy this business for?

Would it be based on say 6-12-15-24 months of gross hosting revenues?

What about average new business per month based on the past 6-12-15-24 months of history?

Would is be based on net profit for the past 6-12-15-24 months?

Would it be based on a flat dollar amount per active web site account?

What about the value of the hosting company's name? Their servers? Reputration?

We are looking for real world information about how this was done with your last purchase/sale. Thanks for the info

[RackMy.com]

It's easy.

Most companies I have seen that have been sold recently sold for 2X annual revenue.

[Planet Z]

Originally posted by RackMy.com
Most companies I have seen that have been sold recently sold for 2X annual revenue.

Really? I'm seeing a lot more of 1X than 2X nowadays. It used to be 3X or more...

[snaphost2000]

Interesting.... 2x vs 1X is a huge difference. Are there any other web resources that talk about actual past sales, current industry trends or standards (1x, 2x or 3x) with respect to this subject?

[Jaiem]

I don't think you can go by straight revenues. The seller should at least try to include something for reputation, service etc what's commonly known as "Good Will".

Putting a dollar value on Good Will is the sticky part.

[Hostking]

Webhost mag had an article on this awhile ago with some going as high as 10x-20x. Anyone remember Verio being bought out? I think that was like 5.5 billion or some ungodly amount of money. Of course NTT can afford it. (wonders if they are still looking to buy more)......

Best Regards,

[RackMy.com]

Well, I think the days of 10-20x earnings are over

[Walter]

Originally posted by Hostking
Webhost mag had an article on this awhile ago with some going as high as 10x-20x.

Do you speak of annual revenue? Everyone who pays 10-20x annual revenue (especially in hosting!) is completely mad in my eyes.

[JayC]

Originally posted by Hostking
Webhost mag had an article on this awhile ago with some going as high as 10x-20x. Anyone remember Verio being bought out?

That brings up one huge variable. It's not clear from snaphost's post whether he's talking about a purchase of client accounts only or a company as a whole. If you're buying the company, you have to factor in not only the future value of the customer accounts, but also the net worth of the company -- what kinds of assets are there, and what debt load? When Verio was purchased, it was thousands of accounts, very strong name recognition and reputation, and millions of dollars worth of hardware and infrastructure.

[Boksoft]

If you were to buy a firm with around 1000 clients, I would personally follow this:

1 x annual gross revenue for client base
+
0.3 if the brand/firm is well known
+
0.2 if the client base contains some potential big clients (good growth potential)
+
0.2 - 0.5 depending on growth rate (new signups)

This would bring you at about 1.5 - 2.0 annual revenue if all is good.

However, if you take over the complete firm, so not only the client base with website, then you will also have to look at:
1) operational costs
2) debts
3) contracts
4) equipment

Watch out for any equipment leases or other long running contracts to which you are then potentially stuck.