Endurance International Group recently announced three acquisitions including Arvixe, LLC a web hosting company, sort of located in San Louis Obispo, California. I say sort of because according to the owner, Arvand Sabetian, the firm has no offices. Totally decentralized, people work out of boats, motor homes and ashrams. Here are some numbers.
Arvixe services 150,000 domains and 70,000 hosting accounts. There are 80 full-time contractors and employees worldwide.
We do have one hard number. Endurance paid $17.6 million cash at closing for the interests of the company. A second payment is due in 12 months; this $4.4 million payment brings the deal up to $22 million.
Holdbacks are always connected to some type of representation, warranty or performance hurtle. My guess is that this is tied somewhere back to renewals and retention. The homepage of Arvixe’s website only shows one rate: as low as $4 a month. After I drilled down a bit I found out that is for 24 months and is due in advance. There has to be a lot of deferred revenues in Arvixe, and from the public information, it is unclear how it was treated in this transaction.
For many reasons I believe Arvixe has around $11.7 million in revenues. This is from the owners public statement projecting 2014 revenues of $12 million and doing a bit of extrapolation from Inc.5000 lists, and finally what makes sense in the cash paid at closing.
Where does this put us? In terms of cash at closing 1.5 X revenues and a total cost 1.88 X revenues if the full post closing payment is paid out in twelve months.
The transaction appears to fall in line with mid-size EIG acquisitions. And of course not as high as EIG paid for much larger companies like Hostgator where the value came in at 2 X revenues.
If you are a smaller shared hosting company I would not use this deal to peg your valuation. This goes to the stock value of EIG, it currently trades at 3.7 X market cap to revenue. It’s in the spread.
Financially without all that brick and mortar Arvixe EBITDA percent could be through the roof, possibly 40-50 percent. This is just a guess, but at $22 million this could be a 4 X EBITDA transaction, more than reasonable. So reasonable if the transaction were larger I think I would almost hear accretive to value.
I think the numbers work for EIG. I just wonder if the deal works. Maybe Arvand Sabetian has really long handcuffs, if not I would be suspect as to how long a decentralized office will be effective. It needs someone to pull it together and from what I understand Sabetian picked up this talent keeping the company alive through college. It is a unique skill.
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