Doing a Proper Hosting Company Valuation Before Selling

When you’re ready to sell your hosting company, you probably want to know how to price it. Most websites designed to evaluate how much a website is worth don’t give you an estimate you can actually use. These sites are almost always higher than the real value. In addition, they don’t work for hosting companies.

Performing a hosting company valuation is pretty easy. Most companies are worth about the same amount as the company would take in per year. For example, if you plan to sell your hosting company and your revenue for 2012 was $150,000; your company will most likely sell for around $150,000. This isn’t 100% accurate, but it does give you a good idea of what to expect.

A Few Things Making it Easier to Value a Hosting Company

Hosting companies using core technologies, such as cPanel and WHMCS are easier to value. These technologies provide a great customer experience and make it much easier for a potential buyer to make a fair offer for your company. Other things looked at include:

• Billing Systems
• Credit Card Information
• Operating System
• United States Based
• Type of Hosting
• Deal Size

Clean Records

If you want to sell your company for the best possible price and you want to do it quickly, you need a company in the business of acquiring hosting companies. This will provide you with an expert in the business, but you still need to do your own research. Not all hosting acquisition companies offer a fair amount for your company. With your own research and hosting valuation, you will know if a company’s offer is too low.

Other Factors in the Valuation of your Hosting Company

Non-recurring revenues are not usually included in the valuation, but recurring revenues are used to help determine the value of your company. Those purchasing hosting companies want to see how much money you’re making and projected revenues for the next few years. This helps provide the necessary information to make an offer for your company.

The most common way to figure the value of your hosting company is called Annualized Recurring Revenue. This method takes the revenue you make per customer, multiplies it by 12 monthly payments, four quarterly payments or one yearly payment and by the number of customers. For example, if you have 5,000 customers paying $10/month, 7,500 customers paying $15/month and 12,500 paying $25/quarter and 1,500 customers paying $100/years, your Annualized Revenues would look like this:

• 5,000 customers @ $10/mo x 12 payments = $600,000
• 7,500 customers @ $15/mo x 12 payments = $1,350,000
• 12,500 customers @ $25/qtr x 4 payments = $1,250,000
• 1,500 customers @ $100/yr x 1 payment = $150,000

Total Annualized Revenues = $3,350,000

If these were your numbers, you’re hosting company would be worth approximately $3,350,000. However, this doesn’t mean an acquisition company or a buyer will pay this much for your company. Most buyers want a deal and they don’t want to pay a full one year of revenue to acquire your company.

Consolidators make up the majority of buyers. These are larger hosting companies looking to add your customers to their infrastructure through an acquisition. Other buyers include strategic buyers looking to buy your company and run it or sell it to another buyer and platform buyers, looking to add a new product to their line of products or services.

What do Buyers Look at When Acquiring a Hosting Company?

Buyers look at more than just the hosting company valuation, but this is a very important part of the process. Most buyers will also look at the infrastructure, support, churn rates, bandwidth usage, ARPU and current marketing methods. These all make a difference in the offer you will receive.

Another thing buyers look at is how you want to structure the deal. If you only accept a 100% cash payment up front, this is riskier for buyers. They may not offer as much if this is the case. However, if you allow buyers to pay over time based on profits, they may pay a higher price due to less risk.

When you’re ready to sell your hosting company, it’s important to do your own valuation. Once completed, you can contact companies in the business of acquiring hosting companies. They will provide an offer and you can sell or keep shopping around. Just make sure you complete a hosting company valuation before you try to sell.