SoftLayer – Right on Schedule – My Estimate $2.5 billion

Add Your Comments

I just surprised myself and realized this is the third blog (No 1 and No 2)  that I have written about SoftLayer and my personal company valuation. As I have already put my head on the chopping block twice why not go for a third X. In case you missed it, the rumor is that SoftLayer are in talks with IBM regarding an acquisition in the $2 billion range. Which did not surprise me; I pegged it over a year ago.

My last valuation was based on a 3Q 2011 blurb where SoftLayer announced  $85 million in revenues and $34 million EBITDA (annualized –  $340/$136 m).  Since then it has been quiet about the numbers. So anything we look at today is almost six quarters old — an eternity.

I have pondered through a lot of information, general data center utilization, servers under management and added data center space. Guess what? I really got nowhere except dead ends, just not enough information to validate anything.

So I think, if there even is a transaction, it is in the $2.5 billion range.

How am I getting there? My best guess is that SoftLayer’s running revenues are in the $475 to $525 million range. EBITA still trending at 40 percent +, or $190 to $210 million.

The key lies in three variables: A – IBM trades at 9.74X EBITDA, (B) IBM has an EBITDA margin of 25.7 percent while SoftLayer has always been in the 40 percent range, a big difference in favor of SoftLayer,  and (C) the participants are not looking at trailing or running statistics, try  forward 12 month numbers in the deal-making.

So looking forward, the deal-makers could easily be looking at some $240m EBITDA, which at 10X equals $2.4 billion ($2.5 billion is just a rounder number).

If you look just look back a few weeks it was announced that Cogeco is picking up Peer1 in a 12.1X EBITDA and 3.1X revenue transaction. So we could be in that stratosphere.

Obviously IBM does not need to do the deal, but as I stated in a 2010 HostingCon presentation the company wanted to do $20 billion of acquisitions in 5 years. In 2012 IBM came out again stating it wanted to do $20 billion in the next 5 years. It is actually behind its goal as in three years they only closed $11 billion in acquisitions. By the way, the average transaction was $340 million.

Obviously there are a lot of “if’s” here but there is one certainty, Lance Crosby became the Mayor of GI Partners last Friday in Menlo Park, California, and that speaks volumes.

Later than sooner – Tom

Find out more about Tom Millitzer: NCC International  FB

E-Mail Tom Direct

Newsletters

Subscribe Now and Get Our Exclusive Report on "The Hosting Infrastructure Ecosystem"

Enter your email to receive messages about offerings by Penton, its brands, affiliates and/or third-party partners, consistent with Penton's Privacy Policy.

About the Author

Tom is president of Millitzer Capital. The Business Broker to the web hosting sector. We have completed 400 assignments. For 20 years we have been making millionaires. I recently wrote a blog outlining a transaction. The seller could have pocketed an additional $2,001,371 by coming to us. ALWAYS seek representation. If you are, or are considering being on a "list" to sell your company call me for my insight.

Add Your Comments

  • (will not be published)