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.
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