Perplexing, perplexing, perplexing. I look at web hosting acquisitions all the time. That is my business, so I try to keep up with the ebb and flow so to speak.
BAM – I can smell when something is out of whack, like immediately. In this case you probably did also.
This week WHIR was reported that “Local.com Corporation acquired approximately 22,000 web hosting subscribers from telemarketing services provider LaRoss Partners for approximately $2.6 million in cash….The acquired customers, according to the company, pay approximately $35 per month for web hosting services, which are provided by a third party”
You probably did the math but lets run through the metrics:
• 22,000 (subscribers) X $35/mo X 12 mo = $9,240,000 annual revenue
• $2,600,000 (purchase price) / $9,240,000 annual revenues = .28X Annual Revenues
Now if you own a shared hosting company you may be thinking your value dropped some 70%. If you are a buyer you want to know where you can get a sweet heart deal.
At first I thought deferred revenues came into play. You know those customers that pay a year in advance. Wrong, after looking at the 8K SEC filing I am pretty confident these customers pay monthly.
I had a client once that was in what he called the Golden Commode business. In one year he build his ISP dial-up base to over 125,000 subscribers paying $39.95 a month, in a $19.95 world. They were all billed by the LEC (Local Exchange Carrier) right on the customers phone bill. Churn was atrocious but those that stayed were, as he termed it “Golden Commodes”. He was what he termed a “marketing company”, I won’t go into detail but it had to do with innovative direct mail.
When you review the Local.com 01/05/10 8-K Report of unscheduled material events or corporate event you will read that on December 30, 2009, Local.com Corporation entered into an Asset Purchase Agreement with LaRoss Partners, LLC. Now go on down to page 5 d) Purchase Price Adjustment, it talks a lot about telephone billing including… “(ii) Buyer has not received a written or telephonic notice from or on behalf of such Purchased Subscriber or a clearinghouse indicating that such Purchased Subscriber intends to cancel or has cancelled, and (iii) where such Purchased Subscriber is billed by AT&T or would otherwise be subject to the October 29, 2009 letter directive from AT&T Billing Solutions attached hereto as Exhibit 2.3(d) (the “AT&T Guidelines”)”. It goes on and on but you can read it, you are smart and can figure it out.
These types of deals only work when you are dealing with volume and anticipate the churn. They are not indicative of the overall market. So you can rest calmly tonight, as the world has not fallen apart. It is just another perspective.
Happy New Year Tom – Lets’s get a deal done.
More about Tom: NCC – the Hosting Business Broker Twitter: – TomNCC and WebHostBusiness
