After an year of mergers and acquisition the sale price of an average web hosting company has fallen down to 1.5 times the annual revenue. Many owners, especially those of the smaller companies sold their businesses. Do they lost?
Many entrepreneurs sold their web hosting companies in 2006. Some received good offers, some faced tough competition and decided to get fresh money and to exit the hosting market. Many of them are probably satisfied of the deals but many sold businesses with thousands of customers for less then the cost of luxury two bedroom apartment in any big American city.
The sale price of a given web hositng company has been undervalued within the whole 2006. The investors have been focused to buy customers at low cost but they have been reluctant to pay for brands. Most of them were existing web hosting companies or acted on behalf such companies.
One of the owners of a popular shared hosting providers has told me last June that the price his company pays to attract new customer has increased a lot. So he prefers to buy small hosting companies and to migrate their customers to his servers. “I’m not paying for servers and infrastructure. I don’t buy businesses, I need to get their customers”, he said when I asked him how does his company plans to grow its customer base.
I have to admit that this way of doing web hosting business works even it looks more like financial operation than as running an web host. But those who sell their customers loose all the time and money invested in hardware, technology and in branding their business. Many of them of course haven’t created value different from the customer base. Most smaller web hosts choose to use standart software applications and run their businesses using some of the popular web hosting management business platforms. That helps them easy to sell their clients when they want to, but prevents them to create strong brand and real business.
The lessons of 2006 however have been learned from those that decided not to sell their companies and from new web hosts. So you can see that more and more hosting providers are now focused to come out with anything that helps them to stand out from their competitors.
The main purpose of anyone who wants to increase the sell price its company would be to combine a few things. To calculate the costs of creating the brand, the postion and ranking in search engines, the value of the domain name, and to calculate prospectives. My advice is to sell only when you have a good plan for growth. Otherwise the investor will not agree to pay the best price, the one you want to get.