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Any advice on selling your hosting business?

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  #1  
Old 05-23-2003, 12:07 PM
seller934 seller934 is offline
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Any advice on selling your hosting business?


I want to hear from people who've bought or sold a hosting business before. I am looking at this from the seller point of view. Can anyone offer advice, avoiding pitfalls, how to not get ripped off?



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  #2  
Old 05-23-2003, 12:10 PM
phpcoder phpcoder is offline
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Sell all of your clients as a whole package. It's a big fuss when you start to send some this way and others that way

Research the company, ask for a phone # to call, etc.

Just my $0.02

  #3  
Old 05-23-2003, 08:01 PM
seller934 seller934 is offline
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Thanks, anyone else?

How do I convince people that I'm genuine and not trying to rip anyone off?

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  #4  
Old 05-23-2003, 10:17 PM
dmistry dmistry is offline
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how many clients are you planning on selling what kind of clients are they all just shared hosting? How do you plan on figuring out how much you are selling them for?

These are a few questions I would have if I where a buyer.

  #5  
Old 05-23-2003, 10:58 PM
seller934 seller934 is offline
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Yea, I have all that stuff. I have an excel spreadsheet prepared, as well as turning over the billing systems when I do a sale. I'm not sure at what point in the negotiations you turn over the client information though.

  #6  
Old 05-23-2003, 11:43 PM
ArcticKid ArcticKid is offline
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Well, my host just sold to another person, actualy...I didn't notice a difference. .

Just make sure you sell it to a friendly host, one who won't lash-out at others, or be rude. Make sure they get great support+uptime.

Also, make sure that they don't raise the price of the clients packages, otherwise...they could start losing the clients.

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  #7  
Old 05-24-2003, 04:18 AM
I, Brian I, Brian is offline
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Well, first of all, I'd recommend you have a lawyer read and advise ont he purchase contract for starters.

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  #8  
Old 05-25-2003, 03:33 PM
Hillary Hillary is offline
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Some suggestions,

Sign an MNDA before you disclose confidential/sensitive information.

Put together detailed information on your customer base prior to talking to potential buyers. You should be prepared to tell/show people, how many accounts/customers you have, what your annualized revenue is, what your expenses are and a breakout of the revenue per plan type. If someone is also buying your equipment you also to be able to provide a detailed equipment inventory.

If you have a bigger company and are trying to sell the stock of the company versus the assets, you will need to make sure your corporate house is in order, software licenses updated and in place, corporate records kept up, by laws in place and corporate meetings and minutes up to date.

In every industry there are standards and yardsticks used to value companies, to set up a methodology on which they trade, a common language. In hosting it tends to be multiples of revenue described in months or years, for example annualized revenues x .75 or monthly revenues x 12. Do some research into the market to determine what is reasonable pricing for a hosting company/accounts, look at what public hosting companies (Interland for example) are trading at and if you can, try to find some examples of recent sales of comparable private companies. If you have a smaller company it made be more difficult to find recent private sales that would be comparable to yours, so you will need to move to Plan B. A general rule of thumb is that there are pricing premiums for public companies and larger companies. So if you can determine pricing for the public hosting companies and larger private companies (based on recent sales), and your company is smaller, you need to assume a discount when pricing your company.

Once you have determined what is current pricing for comparable companies you need to decide what you need/want in a transaction. It doesn't always make sense for the seller to put a number on the table when negotiating with a potential buyer, but if you have certain "must haves" or minimums it is very helpful to communicate these to potential buyers before they make a bid.

When evaluating buyers you need to do more research. Find out if they are going to take good care of your customers. Find out what their plans are for assimilating the customers, and then find out if they have the experience to succesfully complete their plans. I have seen some very ugly migrations/assimilations, make sure your company isn't going to be one of those.
Find out if they have the money to successfully complete their contractual commitments and promises to you (AKA what good is getting a 1.2x multiple if the buyer can't pay it). In today's climate we see many deals where payment is not made in cash, or at least not all cash up front. As a result it is very important to make sure that the buyer has the backing to fulfill their monetary and operational commitments to you.

Typically it is the buyer's responsibility to provide the legal documentation for the transaction, but it is your responsibility to thoroughly review and understand the Purchase Agreement. Find a knowledgeable attorney to review the agreement and offer comments. Depending on your resources and the size of the deal you will need to decide if you or your attorney will negotiate the agreement with the buyer. Frequently I think a combination approach works well, the seller negotiates the business terms and the attorney negotiates the legal terms.

Good luck and feel free to email or PM me if you have questions that I can answer. We only represent buyers, not sellers, so hopefully my answer wasn't too biased.

Best Regards,

Hillary Stiff
www.chevalcapital.com
703 549-8602
Cheval Capital, Inc.

  #9  
Old 05-25-2003, 04:20 PM
The Pioneer The Pioneer is offline
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Good info Hillary. -- It's great to get documentation that the constomers exist; information should include their address, and any other contact information.

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  #10  
Old 05-25-2003, 05:25 PM
VNPIXEL VNPIXEL is offline
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is there a price matrix for it? Let say your current income is ~5K/month. What is the selling price should be?

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  #11  
Old 05-25-2003, 07:33 PM
Hillary Hillary is offline
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What is $5,000 a month of revenues worth?

First of all I am going to assume that you are talking about shared hosting revenues, and that the account base is pretty standard; standard plans and standard pricing. Pricing typically is lower for dedicated, VPS or co lo revenue.

$5,000 a month of shared hosting revenue annualizes to $60,000 of annualized revenues. I would think the range on $60,000 of annualized revenues could be anywhere from a couple of months of revenue up to possibly a year. The terms are another important part of the equation, a higher multiple, may include a longer payment schedule with greater risk for the seller, whereas a lower multiple may include terms that are less risky. Typically there is a trade off. In dollar terms for $5,000 a month I would guess anywhere from $20,000 to $60,000.

I am interested in what are other people are seeing in the market place.


Best Regards,

Hillary Stiff
Cheval Capital, Inc.
www.chevalcapital.com
703 549-8602

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