“I predict incredible values” – Its a couple days shy of one month after my HostingCon Presentation. Frankly I nailed it and recent news have continued to confirm my theories. If your into a quick review of my global/macro thoughts well here it is.
Condensing a 45 min presentation:
Fitjusu: Fujitsu 5,000 Cloud Engineers by 2012
IBM: 400% increase in M&A – $20B 5 yrs.
Microsoft: 42% EBITDA – Considering emulating Salesforce @12% – SaaS – Cloud Valuation competition.
You may think that Hosting firms are stuck in that 1-2X Revenue (4-6X EBITDA) world. I don’t. Given current other sector valuations and pressure from above I see valuations for Cloud oriented hosting firms, Infrastructure (primarily software) and SaaS firms providing synergy. A Hosting company with some of the three previous “add on” sectors will have a premium valuation —- Make that with a “Capital P”. That floats around the sector – the one you are in.
Entering the industry are what I call the “Sophisticated Variant” – these are characterized by the telephone sector (See my Visi/TDS and 8×8 blogs). Telephone companies are hurting as VOIP firms (Like 8×8) are riding the IP rails of Comcast and Time Warner, in a sense for free. In my home state of Florida, landline telephone lines are down 1 million in one year. Did I say “one year”? Did I say “One Million”?. Talk about wireless and VOIP eating their lunch. Telephone companies are against the ropes and they are will continue to fight back with cash, acquisitions and forays into the hosting industry. That fight is in the first round folks.
Stuck in the mud? Public valuations: Hosting trends at 8.9X EBITDA (27% EBITA), Telephone 4.4X EBITDA (38%), Big Box Software 8.9X (36%) —- WOW??? SaaS 31.5X (7%).
The times they are a changin, and firms like AT&T, Microsoft and their big box cousins have deep pockets and need to not only change but actually transform themselves. The word paradigm is overused but they are forced into a real “Paradigm Transformation” framework. This results in a period time warp that will be one of those special times regarding sector valuations.
So readers, are you at the bottom of the food chain, or at the top? Are you the desired, or the cast aside? I see a new world for those of you that are positioned. Do I dare or question (Or even use the word?) your cojones? No I don’t.
I have been incredibly busy since HostingCon – you should have been there because this blog is the tip of my Iceberg – slides available (How can they do justice?).
Later – Tom
More about Tom: NCC International – the Hosting Business Broker Twitter: TomNCC and NCC WebHostBusiness
About Tom Millitzer
I am an M&A guy. I sell Hosting Companies. I want you to fulfill your dreams. If you are building your company or exiting for success...I want help you grow rich.
I started NCC International in 1994, we represented our first hosting company in 1997. NCC has completed over 400 assignments. If you are considering buying or selling you need to know me. I do not bite.
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