The second presentation on Wednesday was given by David DiPietro, president of Signal Hill Capital, another of the sponsors for the event.
He says he’s not an expert in the hosting market per se, so he’s going to focus more broadly on equity markets in a way that can be applied to the hosting business, but probably won’t include too many specifics.
Signal Hill itself is in the equity business, and places a lot of focus on its “IT Infrastructure” practice, a business that includes, among other things, data centers.
He looks at some of the same indicators as Peter Hopper did yesterday, charting the movement of several of the major indexes in the last year, all of which have recovered mostly from their lows in March.
During that time, as the Dow dropped, he says funds flocked to the safety of money market funds, but as the Dow has improved, money is returning to equity investment. The chart was almost exactly the inverse of the previous chart.
He also tracks market volatility over time, which peaked as the market bottomed, and has reduced as things have improved.
Commodities (things like US Oil) have also underperformed the S&P 500 in their recovery since March.
All of these charts, and a few others, he says, are to illustrate the fact that things are stabilizing and improving in the Equity markets.
In the venture capital world, venture-backed IPOs have dropped off almost completely in the last year or two, and technology IPOs specifically have all but disappeared. This, he says has been a combination of the money not being there, and the regulatory hurdles to going public. The good news is that the few companies that did go public have performed pretty well.
We’re definitely seeing a pick-up in tradition growth capital offerings, though, he says, including activity related to IPOs.
Circumstances are more or less the same for US M&A activity (remains at depressed levels – but conditions improving).
He says that going into 2010, there’s a ton of pent up equity money waiting to be injected into the business, as well as a ton of assets that are waiting to be acquired.
What’s more, institutional investors are going to be particularly interested in the hosting space, based on the performance of publicly traded hosting stocks both as the markets in general were going down, but also as they’ve been improving (this illustrating, he says, that they weren’t just viewed as “safe” stocks in which to put your money while things were bad).
Private equity interest in colocation and managed hosting, like interest in public stocks, is increasing, he says.
From the perspective of private equity, the hosting and colo sector is a high growth segment, with recurring revenue, significant EBITDA margins, it’s in its early stages and it has sophisticated high-credit customers. It also sees a lot of opportunity to acquire companies in the next two to five years.
Like the finance presentation yesterday, some of this was a little bit out of my realm of deep understanding, but the objective of both finance-oriented speakers was very obviously (even to my mostly untrained ear) that the interest and availability of financing, debt, acquisition activity, etc. in the next year or two looks promising, particularly by the standards of the last year.
About Liam Eagle
Liam Eagle has worked as a contributor to the Web Host Industry Review since its inception in 2000, and as editor since 2003. He has been editor of the WHIR's print magazine since its launch. His daily involvement in the gathering and reporting of Web hosting news and his regular interaction with Web hosting leaders gives him an uncommonly broad appreciation of the issues and tends facing the business. Through his WHIR blog, Liam spots Web hosting trends and offers opinions on the industry-wide impacts of major developments and the motivation behind big announcements. Follow him on Twitter @liameagle
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