I'm planning to takeover a hosting company. Their annual turnover is around 250K USD and approx monthly expense is 8K USD that excludes the customer support cost and they have outsourced their support ticket and live chat and it costs 1900 USD per month if i continue to use their support, i can pay 1900$ directly to the company who is handling their support and live chat.
So it costs approx 10K per month (with support) and 120K per year
This company is selling following services:
1) IRC Shell - Not much revenue from it, the seller is ready to sell it to some other company if i don't want it, but even i'm into IRC so no big deal i can take care of it as well
2) Shared Web Hosting
3) Linux, FreeBSD and Windows VPS - Using OpenVZ for linux vps and HyperV for FreeBSD and Windows VPS
4) VPN Tunnel - Not making any profit in it, so can probably not buy it either.
5) Dedicated Servers - they are just reselling it from other providers, and have good terms with the NOC from where they buy it so can be easily transferred to me
6) Domain names - Resellerclub
The owner is from India, even i'm from India and even their company is registered in Singapore just like mine, so it's easy for me to deal and verify all the facts and figures.
They are asking me for 2 Year of revenue, is it worth it ? or what should i offer them ? this is first time me trying to takeover a company so need some help whether it's really worth it or not
Seller ask for more than 1-1.4 x annual revenues if they either have been in business for a long time, they have a really low cancellation rate, have a good growth rate, own 100% of their equipment or a combination of all. I personally wouldn't pay 2x the revenue unless running over the business is easy and doesn't require much from my time. You need to wait 4 years to get your money back given that evrrthing else stay consistent and you don't lose clients, otherwise it will take you longer. Not inticing to put my money in
I think you should be looking at EBITDA and a multiple of that + assets , instead of pure turnover/revenue.
I know a lot looks similar to my own company but i'm not talking about my own company, if i had to sell out my company i probably won't ask about it with my primary account, as far as i remember WHT has some policy to create a new account and post using it (with prior approval) to stay anonymous because if you are unable to get a good deal and are still in business you might just loose some credibility if any of our client reads it.
Even 2X the revenue seems really high to me, but just wanted to know thoughts of others in this industry if it's really worth it or not
Anyways thanks, i'll try to negotiate and see if i can get the deal
The general rule of thumb is that you start at around ten months of profit (not revenue) and adjust based on how desirable the company is.
How many reviews are there? How recent are they? How many are good? A lot of good reviews over the past 12 months can drive the price up, while a small number of bad reviews can drive the price down. What is the host's reputation in your target market? Will the host be advising his customers of the sale? Do you intend to keep using the old brand name? How often do customers cancel? How many invoices are unpaid each month? Are there any lawsuits pending or legal judgements issued against the company? Are there any unpaid taxes? How quickly is the company growing? What's the average revenue per user (are you seeing $20k per month from 20,000 customers, or $20k per month from 200 customers)?
To pay two years' worth of revenue (not profit, but revenue), that had better be an entirely hands-off company that's been around for a very long time with very long-term customers. At $10k per month profit, it's going to take you four years to recoup your purchase price, assuming nobody quits and nobody joins.
That asking price seems awfully high to me. There is no rule that fits all people under all circumstances but two years of profit is extremely high. Two years of revenue seems ridiculous.
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