This is the second time in a month I have written about the press being far off on deal estimates and valuations. Last year, the media reported that Endurance International Group (EIG) purchased HostGator for $225 million. At that time I wrote a blog stating my numbers were at least 20 percent greater, adding some $50 million. I discounted my ideas as I feared everyone would think I’m crazy by indicating the press was off some 25 percent or even 30 percent. EIG’s $400 million IPO revealed many secrets, and I was not crazy.
EIG paid $299.8 million for HostGator, fully 33 percent over the value others prognosticated. I was very right.
Deal structure means everything: On July 13, 2012 EIG paid $227.3 million in cash at closing to HostGator. However there are two post closing payments, $52.3 million and $26.2 million in July 2013 and January 2014, respectively. A tiny $2.3 million was reported as SG&A. Total $299.8 million.
In reading through the IPO I believe this was a must-do deal for EIG. After all, the company is going into the IPO with some $500 million in annual revenues with $150 million courtesy of the HostGator transaction. It makes me wonder if it would be wise to even attempt this IPO without the benefit of HostGator.
A couple of other quick observations; buried in the numbers one finds that HostGator had a higher EBITDA percentage than EIG and average rates are almost identical between the two firms.
I know you want valuations:
Multiple of annual revenues: 2x
Multiple of EBITDA: 6.8x
The EBITDA number I used was after adding back the $19.9 million Brent Oxley, owner of HostGator, paid out on July 12, 2012 as bonuses to staff.
Doubling your money is always a good idea. Last year it was reported that EIG had a $2 billion valuation. Moving the pieces around the chessboard $600 million could be attributable to the HostGator acquisition.
Now that is straightened out we can get back to business.
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Find out more about Tom Millitzer: NCC International