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SearchBuying or Selling a Web Hosting
Business
You might come to the point where you would like
grow by acquiring another web hosting business or maybe you want to sell your
own business and retire from the industry. It is easy to find a buyer and it is
also not difficult to find sellers who want to get out. But how do you put a
fair value onto a web hosting business? This part of the process is the most
difficult step. The seller always wants the highest prices while the buyer only
wants to pay a small amount of money. The gap between those two expectations
will either make or break a deal.
Here are a few consideration and
recommendations about how to determine what a web hosting business is worth and
what people are willing to pay for clients.
Clients - what are they worth
at all (money-wise) when buying a web hosting business? How do you determine the
value? What do you have to keep in mind?
The first thing to consider and
to find out - what payment terms are in place for the client payments? Do the
clients pay monthly, quarterly, semi-annual, or even yearly? This is important
to know, as it will affect your cash flow right away. Imagine you pay for
clients that have yearly payments in place. In the worst case you would have to
work almost 12 months before seeing any money. Clients with yearly payments in
place are much less worth for the buyer compared to clients who pay on a monthly
base. If a web host has different payment models in place you should split the
clients into groups according to their payment schedule. Then work out a price
for each group.
You also have to keep in mind that very often clients do
not like change. They will be leaving the new web host very soon after the deal
has been closed and the announcements to the clients have been made. From what
we have seen - the percentage of this can go up to 15% in some cases - though 5%
to 10% is a more reliable number. This should be considered when working out the
deal.
Now it comes down to determine - how much are the clients worth?!
Common values put on clients in the web hosting industry range from 3 to 9
months of the monthly revenue. In some cases even up to 12 months revenue has
been recorded. It really depends on the business model and the quality of the
clients. Small business clients are to leave the hosting company less likely
than a customer with a personal website.
What else needs to be
considered? If you are buying just the clients to integrate them into your
business and under your business brand name, you'll be fine with the model
introduced above. But what if you buy the complete business - including the
name? Building a brand is a difficult and time-consuming process. Buying an
existing brand gives the buyer a short cut. The result is that the business
brand name is worth quite a bit. How much is it worth? It depends on each single
case. One way to determine the value of a brand name is to see what the expected
number of sign-ups per month is. 50 new clients per month on average will give
you a good ballpark number. As it is more difficult to get new clients compared
to keeping existing ones, the value put on these possible clients is less than
the value put on existing clients. A 3 to 6 month value of the expected revenue
from this seems to be a fair value to determine the brand name value. But again
- this might vary and each case needs to be looked at separately.
If a
complete business is being sold, it might include hardware and software
licenses. Determine the value of these items per age (especially hardware) and
what kind of software licenses you would sell/buy.
Buying a business (not
just the customer base) might also bring liabilities. Are there any employees to
take onboard? Are there existing contracts with vendors (data center, software,
etc.) that need to be served? Determine the outstanding $$$ amount per item.
Make sure that the supply cost is reasonable and that you are allowed to
buy/sell the contract/agreement. Under normal circumstances this should not pose
a problem. But if the cost or contractual agreement is limiting your way of
taking advantage of the business this should be considered when making an offer
for a business.
How about the terms of the payment when selling a web
hosting business? Paying for everything 100% is not a good thing. The seller
walks away and you just have to hope that everything will go on as 'advertised'.
A 60% payment when the deal closes gives the seller security to get his money.
The buyer also knows that he is not risking 100% of his investment right away.
The outstanding amount should be split into smaller payments. Depending on the
overall amount of the outstanding money, the time frame for the payment should
be split between 3 to 12 months before 100% are paid out. The smaller the amount
is, the shorter the time frame should be.
A good way for the buyer to
make sure he gets what he is paying for is to keep the seller around for 3 to 6
months. The contract should clearly state that the seller is available a certain
amount of time or the outstanding price is not being paid. The seller should
also sign a non-compete agreement and eventually a no-disclosure agreement to
protect the buyer.
Buying an existing business also requires a good
strategy upfront. Would you be integrating the clients into your business or run
the new business under its old name? Do you want to move the clients to your
hardware and consolidate or leave them where they are? How about support? Does
your staff have the skills and knowledge to support the different environment?
Do you have staff at all or do you eventually need to hire someone? Would you
rather buy one big business or maybe many smaller ones? Consider these things
when being in the market for buying a web hosting business.
Business
You might come to the point where you would like
grow by acquiring another web hosting business or maybe you want to sell your
own business and retire from the industry. It is easy to find a buyer and it is
also not difficult to find sellers who want to get out. But how do you put a
fair value onto a web hosting business? This part of the process is the most
difficult step. The seller always wants the highest prices while the buyer only
wants to pay a small amount of money. The gap between those two expectations
will either make or break a deal.
Here are a few consideration and
recommendations about how to determine what a web hosting business is worth and
what people are willing to pay for clients.
Clients - what are they worth
at all (money-wise) when buying a web hosting business? How do you determine the
value? What do you have to keep in mind?
The first thing to consider and
to find out - what payment terms are in place for the client payments? Do the
clients pay monthly, quarterly, semi-annual, or even yearly? This is important
to know, as it will affect your cash flow right away. Imagine you pay for
clients that have yearly payments in place. In the worst case you would have to
work almost 12 months before seeing any money. Clients with yearly payments in
place are much less worth for the buyer compared to clients who pay on a monthly
base. If a web host has different payment models in place you should split the
clients into groups according to their payment schedule. Then work out a price
for each group.
You also have to keep in mind that very often clients do
not like change. They will be leaving the new web host very soon after the deal
has been closed and the announcements to the clients have been made. From what
we have seen - the percentage of this can go up to 15% in some cases - though 5%
to 10% is a more reliable number. This should be considered when working out the
deal.
Now it comes down to determine - how much are the clients worth?!
Common values put on clients in the web hosting industry range from 3 to 9
months of the monthly revenue. In some cases even up to 12 months revenue has
been recorded. It really depends on the business model and the quality of the
clients. Small business clients are to leave the hosting company less likely
than a customer with a personal website.
What else needs to be
considered? If you are buying just the clients to integrate them into your
business and under your business brand name, you'll be fine with the model
introduced above. But what if you buy the complete business - including the
name? Building a brand is a difficult and time-consuming process. Buying an
existing brand gives the buyer a short cut. The result is that the business
brand name is worth quite a bit. How much is it worth? It depends on each single
case. One way to determine the value of a brand name is to see what the expected
number of sign-ups per month is. 50 new clients per month on average will give
you a good ballpark number. As it is more difficult to get new clients compared
to keeping existing ones, the value put on these possible clients is less than
the value put on existing clients. A 3 to 6 month value of the expected revenue
from this seems to be a fair value to determine the brand name value. But again
- this might vary and each case needs to be looked at separately.
If a
complete business is being sold, it might include hardware and software
licenses. Determine the value of these items per age (especially hardware) and
what kind of software licenses you would sell/buy.
Buying a business (not
just the customer base) might also bring liabilities. Are there any employees to
take onboard? Are there existing contracts with vendors (data center, software,
etc.) that need to be served? Determine the outstanding $$$ amount per item.
Make sure that the supply cost is reasonable and that you are allowed to
buy/sell the contract/agreement. Under normal circumstances this should not pose
a problem. But if the cost or contractual agreement is limiting your way of
taking advantage of the business this should be considered when making an offer
for a business.
How about the terms of the payment when selling a web
hosting business? Paying for everything 100% is not a good thing. The seller
walks away and you just have to hope that everything will go on as 'advertised'.
A 60% payment when the deal closes gives the seller security to get his money.
The buyer also knows that he is not risking 100% of his investment right away.
The outstanding amount should be split into smaller payments. Depending on the
overall amount of the outstanding money, the time frame for the payment should
be split between 3 to 12 months before 100% are paid out. The smaller the amount
is, the shorter the time frame should be.
A good way for the buyer to
make sure he gets what he is paying for is to keep the seller around for 3 to 6
months. The contract should clearly state that the seller is available a certain
amount of time or the outstanding price is not being paid. The seller should
also sign a non-compete agreement and eventually a no-disclosure agreement to
protect the buyer.
Buying an existing business also requires a good
strategy upfront. Would you be integrating the clients into your business or run
the new business under its old name? Do you want to move the clients to your
hardware and consolidate or leave them where they are? How about support? Does
your staff have the skills and knowledge to support the different environment?
Do you have staff at all or do you eventually need to hire someone? Would you
rather buy one big business or maybe many smaller ones? Consider these things
when being in the market for buying a web hosting business.
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