Possibly you read my 2009 Wrap-Up and 2010 Predications or the Preface and Part 1 of this series. Today we look at a real deal – VISI and recent comments by Microsoft CEO Steve Ballmer, I think I am on to something…if all goes well we will have a crescendo at HostingCon where the headline of this blog is basically the topic of my presentation. Feel free to attend.
Over the last month there have been dozens of articles about Minneapolis based VISI being acquired by TDS Communications Corp, a subsidiary of Telephone and Data Systems (NYSE: TDS). TDS is the nations 8th largest telephone company, they have 750 thousand customers, over $5 billion in annual revenues and $670 million cash on hand. They specialize in smaller markets.
First a brief comment from Microsoft CEO Steve Ballmer, this and the next paragraph are lifted from the Information Week article where he stated “Everybody is saying, look, next time I touch anything, I’m going. If I’m not touching anything, maybe I don’t go,” Ballmer said. “But if I’m really going to touch something, I’m going to have this [cloud] discussion.”
Ballmer included a “hockey stick graph”, which Information Week pushed to clarify– When does that hockey stick growth take off? Ballmer said “We’re not there yet, right? “I don’t know. It sure feels like we’re there today to me.”
Friends — I don’t make this crap up, but that is what the CEO of Microsoft said, but I have news for you, he is right. The hockey stick already struck the puck and the name is the TDS/ VISI deal.
In reviewing the press regarding the transaction and discussions with knowledgeable personal sources, TDS paid about $17.5 million for VISI – a company that does about $10 million, possibly as much as $12 million in revenues. In valuation matrix terms that works out to to 1.45 to 1.75 X annual revenues. Now that is the only figures I have, so bare with me, no SEC docs have been released.
That “up to” 1.75 X valuation is what I would expect from a high touch managed hosting firm, or a “I am moving toward being a pure cloud company – but not there yet”. I think Mike Swoada, CEO over at VISI, got a great deal.
My analysis – TDS got what they wanted, “the Cloud”, or at least a potential cloud or some version of a cloud. You see VISI probably derives up to 50% of its revenues from DSL (not the cloud?) – now DSL firms are really sub (underscore sub) 1X annual revenues. VISI overall serves 10,000 business and residential customers, that equals a generous $100/mo per customer. That does not work out to what I would normally term 1.75X.
But you see as in a VISI press release about a recent data-center expansion – they casually mention that cloud thing,
This is about opportunity and geography. After all TDS has something like 400X the revenues VISI’s revenues. The fledgling TDS subsidiary, TDS Communications Corp, grows from some $16 million in annual revenues, this deal pushes it to $30 million. This is the subsidiary with the future, the subsidiary that can act like glue to hundreds of thousands of SMB land line and cell customers. The future that includes higher margins, revenues outside regulated PUC purview, the path to the future.
Oh- geography – TDS is headquartered in Madison Wisconsin, just 5 hours drive from Minneapolis.You want to keep tabs on this development.
TDS has a market cap of $3.7 billion, only .74X annual revenues. They paid at least 2X the TDS market valuation for a company that largely in in the same space. With $670 million cash on hand you can afford to bet on the future.
As a side note, Mike Swoda has incredible timing. The press releases of this deal was released 24 hours prior to my blog that that outlines some important tax consequences. Check it out and you will see some most remarkable timing. It is possible Mike saved oodles in taxes by possibly three days.
In the hosting space VISI is really managed and colo…but that is how you move to the cloud. Lets call it seeding the cloud before the rain maker.
Later – Tom
More about Tom: NCC International – the Hosting Business Broker Twitter: TomNCC and NCC WebHostBusiness
