I was going through my files --- then again and again ---- March was a slow month…but April will be better – at least my firm did three.

Lynchburg VA – Sitestar (OTC: SYTE) bought the assets of Comcation, an Internet service provider whose services also include web hosting. As a side note Sitestar’s CEO, Frank Erhartic has agreed to be on an M&A panel this blogger is moderating at ISPCON.

Australia -  MYOB acquired Ilisys Pty Ltd one of Australia's larger web hosting providers. MYOB provides accounting software and payroll software to more than 700,000 businesses worldwide.

Glendale, CA -  Pro Net Hosting acquired Homepage Universe which doubled the firm’s size to over 100,000 shared and dedicated hosting domains.

Denver, Colorado - ViaWest, acquired Dallas based Dataside. With the Dataside acquisition, ViaWest's annualized revenue will exceed $100 million by the fourth quarter of 2008.

London -  Freedom4 Communications PLC, signed an agreement to sell its Hosting and Network Services Division to Host Europe WVS Ltd for 120.0 mln stg. ($235m)

Minneapolis -  VISI acquired Infinity AccessNET, a business-focused Internet Service Provider. 

Obviously not all inclusive - but from the NCC files.

More about Tom:

New Commerce Communications

E-Mail Tom Direct

“Certainty? In this world nothing is certain but death and taxes.” Except for not patenting electricity Benjamin Franklin is usually correct.

In regards to the life cycle of your web hosting company his timing is impeccable.

Your company should do everything possible not to pay taxes. You can either give it to the government, great benefit there, or grow your business and hence the economy. Hire more employees (let them pay taxes), spend money on capital equipment and that whole channel line pays taxes. But remember you don’t want your company to pay taxes. Not on April 15th.

Smart and profitable industrialists, hopefully like you, avoid taxes. That is one of the commanding reasons for acquiring a business.  Most web host firms have lousy balance sheets. They have depreciated the assets and have nothing to shield profits, they pay taxes.

I always find it sort of magical that you can acquire an asset (buy a company) that was fully depreciated yesterday, put it on your balance sheet today (stepping up the assets as accounts say) and voila! you have a complete new depreciation schedule protecting your cash. Sort of like asparagus cropping up in the spring, where did that come from?

So you say…“I am profitable but don’t have any money to make an acquisition Tom”. Even a better reason to take out a government loan. That is exactly what not paying taxes is, a differed no interest loan from the government. And if you screw up sort of risk free.  

Now Ben was correct…nothing is certain but death and taxes. In your case the death of your company. Don’t frown, this is just the end of the investment period…maybe the buyer of your company will keep the name, who cares?…your out. Now you want to pay a lot of taxes, big time taxes. You have taken those government loans and parlayed them into your success. As Franklin said taxes were certain, he just did not state when.

More about Tom:

New Commerce Communications

E-Mail Tom Direct

Laguna Niguel, CA -  Alentus Corporation acquired John Macleod’s AO Technologies’ Columbus Ohio Data Center. It is rumored that Alentus is picking up a company across the pond. AO provides high-end dedicated and streaming media services

Leeds, UK -  Masternaut Three X, acquired FibreCity for GBP 6 million ($12 million USD). Deal added 25,000 sq/ft data center.  The acquisition of FibreCity enables Masternaut Three X to provide more extended hosted back-office solutions.

Dallas, TX - Affiliated Computer Services, Inc. (NYSE: ACS)announced an agreement to acquire sds business services GmbH, a Germany-based provider of data center, infrastructure services, and application-related solutions from Waterland Private Equity Investments. ACS will pay approximately $67 million (euro 46 million), including the assumption of liabilities, to purchase sds. The acquisition is expected to close in March 2008 following regulatory approval.

Charlotte, NC - TITAN Technology Partners, a provider of hosted and managed industry solutions, acquired Singapore based ESP Consulting.  ESP operations is and managed services provider focused on delivering SAP solutions.

Belfast, Ireland - IUTV Media plc today acquired of Tibus, a leading Ireland web development company from Anderson Spratt Group Holdings for GBP 5 million ($10 million USD).

Chevy Chase, MD - Opus8 Inc. affiliate, Clear Day Acquisition Corp., has acquired a controlling interest in Lore Internet Systems. Terms of the transaction were not disclosed.  Lore services includes, managed datacenter hosting and co-location. The acquisition has approximately doubled Pro Net's size and it is now providing shared and dedicated hosting for over 100,000 domains.

Sao Paulo, Brazil  - Universo Online S.A. (UOL) acquired the "clients" of web hosting company Digiweb  UOL is now the third-largest provider of web-hosting services company in Brazil. See my March 6, 2008 blog for additional information and comment.

Rochester, NY - Layer 8 acquired the Web hosting and information technology support services branch of DigiNex. RACD

Obviously not all inclusive - but from the NCC files.

More about Tom:

New Commerce Communications

E-Mail Tom Direct

Last week Universo Online S.A. (UOL) acquired the "clients" of web hosting company Digiweb, also of Sao Paulo, Brazil. In November, UOL also acquired the web hosting "clients" of Plug In another Brazilian firm.

The importance:  UOL is now the third-largest provider of web-hosting services company in Brazil.

UOL did not mention the "third largest" part after the Plug In acquisition --- letting me believe that Digiweb was a fairly large deal.

I check out UOL - Basically an Internet/media powerhouse. They are vertical, horizontal, diagonal and the karma sutra all rolled into one. You really have to read the corporate bio --- Brazilian portal with 1.4 billion page-views a month, 1.7 million content paying subscribers, 1 million broadband customers…and now the THIRD LARGEST web hosting company in Brazil (Which I may add has a population of 184 million).

They want to collect the tolls on the electronic highway...including all entrances and exits. Someone has to collect.

The UOL financials…some great info…

• My favorite part: "The Company had no outstanding loans or financings at the end of the 4Q07". (Same position as Microsoft)
• They have a lot of cash - $284 million USD.
• 2007 EBITDA - $91.8 million USD - a fantastic 29% of net revenues.
  

The largest shareholder (41%) is the San Palo newspaper owner Folhapar.

UOL stock has dropped some 60% in the past 12 months...but the one thing I know about newspapers, they are long term players with long term visions. 

And the movie Brazil... 

More about Tom:

New Commerce Communications

E-Mail Tom Direct

First we will start with an alert---because timing can be everything.

Marbles… One of the most important parts of any transaction is how many marbles you get to keep. If you are considering selling your company in 2008, 2009 or 2010 please run down (not just trott, put off til' tomorrow...I said RUN) to your tax accountant. If it would be a stock sale, which frankly you really don’t know today, you could be in trouble.

Why? The Bush tax reductions will soon start to evaporate, specifically the long term capital gain treatment which expires December 31, 2008 ---- yes a short 10 months away. In a stock transaction it could cost you another 5% in taxes.

Well it is only 5% some people may say. Yes but it takes almost 7% to make that up after paying taxes on the incremental amount you need to cover the poor timing.

So if you are considering selling in 2008 you should start earlier than later. And if you are considering 2009 ---- think again.

 ========== MORE ABOUT TOM ==========

New Commerce Communications

E-Mail Tom Direct

Tucows (AMEX:TCX) has lost 50% of its market value since July 2007. Yes it has dropped from $1.26 to $0.63 a share, a 50% drop over the last six months.

The Company just released it’s year end financial statement, so now is a good time for a quick review of the basics:

-    Annual revenues were $74.6 M vs. $65 M for the previous year – up 14%, nothing wrong there.
-    Net Income $2.6 M vs. $2.1 M – up 24% -- direction is good.
-    EBITDA $8.7 M vs. $5.8 M – up 50% -- something to write home about.

Tucows has a market cap of $46.5 million. The overall value could be stated as:

-    5.3X EBITDA
-    .62X trailing revenues.
-    PE Ratio 18.68

So why is Tucows trading so low? Why has it dropped a whopping 50%? As a high tech firm it deserves at least a 40 P/E ratio. It should be trading at a 1X revenue range, frankly more. That would take it back the July stock price.

The problem is the Tucows balance sheet. The Company has $80 million in liabilities. How is Tucows going to make it? Given current EBITDA one could take almost 10 years to pay it back, not including interest. The game is over; tank the deal, time to trade out.

WRONG WRONG WRONG ---- Tucows needs more liabilities, I think liabilities should go through the roof. They should be the master of liabilities; the street just doesn’t get it.

Financially speaking there are not many firms like Tucows. They sell millions of little things, sort of like Coca Cola. However those little things are domain names, selling for lets say $12.  Since they are paid “up front” for a specific period, usually one year, the revenues for these are recognized at $1 per month, not the $12 when the transaction occurred. Sort of like cash vs. accrual accounting.

The bulk of the liabilities time out in one year, when hopefully, they start all over again. Look at it as millions of itsy bitsy revolving loans.

Of the $80 million in liabilities, $50 million (63%) is tied to deferred revenues resulting from domain registration sales. Domain name registrations account for 73% of revenues.

Usually I hate deferred revenues (which is a topic for a separate writing). However for Tucows it is the business model.

I might be naive, but I don't think many people drive up to Tucows and say..."I stopped using my domain name...I want my $3 back". I have a hard time rationalizing how GAAP, in the practical world, should apply here.

Tucows – Has a deferred problem. One the street does not understand, and one I think is holding the stock price down.

========== MORE ABOUT TOM ==========

New Commerce Communications

E-Mail Tom Direct

 

January was a bit slow --- this is often the case as firms often try to close transactions by the end of the year.

Sunnyvale, CA -- Network Appliance, Inc. NetApp (NASDAQ:NTAP) completed the acquisition of Boston based Onaro, a datacenter automation solution company in a $120 million transaction. It is reported that backers put about $9.5 million in Onaro, which looks like a great return.

Las Vegas NV-- Dialpoint Communications Corporation (OTCBB: DLPC), acquired the assets of South Carolina based Hostigation.com. Dialpoint issued 333,334 shares --- a deal which in another blog I noted was worth $50k in an all stock transaction.

Niagara Falls, ON - Canadian based Vision Online Network was acquired by Deli India based Real Value Hosting. Vision Online Network specializes in Windows based web hosting.

Duluth, GA - Ralph Smith's Fat Jack Hosting Acquired HostMyProxies.com, a proxy website host. HostMyProxies.com is based at an undisclosed location.

Dallas, TX – Affiliated Computer Services, Inc has acquired Syan for approximately $60 million. Syan’s trailing twelve-months revenue was approximately $75 million. The transaction was funded by existing cash on hand. Syan has several large data centers in the UK.

Tempe, AZ - Greenstreet Real Estate Partners acquired the Tempe One (Tempe, AZ) data and call center for $30.3 million.

Edmonton, AB, Canada – California upstart Enacten acquired all of the shares of Edmonton based Alentus Corporation in an all cash transaction.  Alentus provides dedicated/managed and shared hosting services. New Commerce Communications (this blogger) represented Alentus in the transaction.
   
Pittsford, NY - Spider Graphics Corporation and ITX, a web technology and hosting firm merged. The new name is Spider ITX, very creative.

Overland Park, KS -  Erickson Solutions Group has bought the client base of Nothing But Net a company that concentrates on Web and e-mail hosting. Hopefully the acquisition will help the Erickson corporate website.

Raleigh, NC - Hosted Solutions has acquired a new data facility, it's second in Charlotte, NC. The site adds 7,600 square feet of floor space.

Obviously not all inclusive - but from the NCC files.

 ========== MORE ABOUT TOM ==========

New Commerce Communications

E-Mail Tom Direct

Some M&A info from the NCC files for December 2007 - Not all inclusive but interesting...

Madrid, Spain - Private equity firms The Carlyle Group and Mercapital acquired Spanish Web hosting and domain registrar Arsys (arsys.net) for about $230 million. 550,000 domains registered, 170,000 customers and 250 employees.

San Francisco, CA - Digital Realty Trust acquired two European data centers; Cressex 1 in London, England 51,000 sq/ft and Naritaweg 52 in Amsterdam, Netherlands - 63,000 sq/ft.

San Mateo, CA - Garnett & Helfrich Capital purchased MTI Europe in a court-supervised auction. MTI offers the managed services, data storage, protection and collocation services.

Montreal, Canada - HostingDiscussion.com acquired and merged with HostingRefuge.com and TalkWebHosts.com

Macomb, IL - McDonough Telephone Cooperative (MDTC) acquiring Infobahn Outfitters a web hosting and web design company.

Suwanee, GA — Quality Technology Services, a provider of data center and managed services, acquired the customer base of First National Technology Solutions in Kansas City. QualityTech will boost its annual revenues over $100 million with the deal.

Lancashire UK - Red Fox Hosting acquired AGUK Hosting, managed and exchange hosting services

Herndon, VA - SWsoft acquired WebHost Automation Ltd. (Bristol, U.K.) maker of the Helm control panel and billing software for Windows - 1.5 million worldwide end users.

London, UK - UK-2 Group, Ltd acquired Dan Ushman’s Chicago based midPhase Services Inc.’s shared and VPS businesses. Dan keeps his fingers in the pie as he works his way up the food chain - why? UK-2 will collocate the acquired assets at SingleHop, Inc, a company owned and operated by Zak Boca and Dan Ushman. (High 5 on that one!)

My favorite acquisition of the month:
Chatswood NSW Australia - Broadcast Australia entered into an agreement to acquire Hostworks Group Limited a full service dedicated/managed colo company in a $68.9 million transaction. Each firm’s competencies complement each other – actually/really – synergistic - Check out the links to see what I mean. This is a great marriage – also the deal is a 37% premium to the latest closing price of Hostworks shares.

The UK and its past and related domains were busy in December.

========== MORE ABOUT TOM ==========

New Commerce Communications

E-Mail Tom Direct

In case you missed a few - here are some web hosting and related merger, acquisitions and noteable transactions from around November 2007.

AxisHOST Montague, MI acquired VPS solutions provider, BuyAVPS.

BBS Technologies Houston, TX acquired R1Soft, a data recovery software firm.

Cenicola-Helvin Enterprises Las Vegas, NV acquired Florida based Lpanel.net Corp consisting of Web hosting customers.

DevStart, Orland Park, IL acquired ServerSeek.com, a server company directory.

Eventi Capital Partners Inc., Toronto, ON acquired equity stake in Brian Shepard's Canada Web Hosting.

Fat Jack Hosting Suwanee, GA acquired budget hosting company NWAHosting.

Ben Neuman’s Los Angeles, CA based Globat.com acquired virtually all assets of HostAWay.net.

HostedToday.com Charlotte, NC picked up shared hosting provider TheGreatHostingCompany.com.

Interoute, London, UK acquired Sweden based  hosting and managed services company, pi.se.

Mountains West Exploration, Inc. Downers Grove, IL acquired Secured Digital Storage LLC online backup data storage.

Nettlinx, Limited Union City, NJ (Subsidiary of a firm from India) acquired Host Department, LLC.

Raincity Studios Vancouver, BC picked up the community publishing platform and hosting company, Bryght.

Ultraspeed UK has completed merger with Hostroute.com, hosting some 50,000 websites.

Webair of Los Angeles, CA purchased Montreal, Canada-based web hosting provider Wisol.

Obviously not all inclusive - but from the NCC files. 

========== MORE ABOUT TOM ==========

NCC - New Commerce Communications

E-Mail Tom Direct

Recently I wrote a blog about Firedog and the Geek Squad. I need to put this subject to bed so I can get on with better things. But I did learn something.

First - promotion wise Circuit City (Firedog) is way ahead of Best Buy (Geek Squad) in advertizing and promoting the service. After visiting both, the in store emphasis reflects the ad space. Firedog is way ahead, "it has it all" - I love that line.

Going to both stores was problematic - in the spirit of providing the best info for these blogs, my wallet eventually came out.  All three stores got into my pocket. Did I say 3? Yes, CompUSA actually got most my cash and even haggled several hundred dollars less than BB & CC.  Highly recommended for hagglers - as I now struggle with 120hrz.

Now price points for a flat screen TV installation/theatre co-ordination (Oh yes CompUSA has TECHPRO, which by the way, reminds me of Chuck and his buddy Morgan).

• Geek Squad - Figure $500
• Circuit City - Around $450

I opted for spending Thanksgiving weekend learning about and installing my new toys (Which can only be described as a custom job) and figuring out why Best Buy does not push the Geek Squad. 

Why isn't the Geek Squad pushed by Best Buy? Best Buy is in it to make money. At $500 a pop it is just too labor intensive.  Magnolia - a humbling experience.

========== MORE ABOUT TOM ==========

New Commerce Communications

E-Mail Tom Direct

Nothing raises your bottom line faster than a well thought out rate increase.

Note: This blog is probably not for firms that are considered budget or provide poor service.

Web hosting is often considered a commodity business; therefore web host firms are reluctant to raise rates. There are many obvious excuses; "All my customers will revolt and will go away. Our phones will ring off the hook. Our trouble calls and IMs will be swamped."

Worry wart. It will probably not happen to that extent, but you want some of it to occur.

Reasons to increase rates:

Part 1 - The Customer:

• The customers you lose most often are the ones you lose money on. They generally have a much higher trouble ticket/service problem etc. than the regular customer. They cost you money.

• The customers you lose are probably milking your bandwidth.

• The customers you lose probably have a higher percentage of past due bills.

 Part 2 - Your Business:

• Your overhead can actually go down without the bad customers.

• You have more profit, you can cover expenses, afford to add those new servers,  software upgrade, billing platform or increase employee benefits.

• You can even make more money!

Why and Ideas for a rate increase:

• CPI – Your costs do go up and your customers expect it.

• You are due a raise...when did your rent, phone, groceries and gas go down?

• You have too many rates for essentially the same service. Move them to a singular rate, some may even get a decrease.

• Also if in the future you consider selling your company, consistant rates makes the presentation easier.

• Bundling/Enhancements: Add services, enhancements (even perceived enhancements) to the package at the same time.
  • Actual Enhancement:  Tell your customer that their bandwidth limits have been increased 10%, plus...whatever.
  • Perceived enhancements, you can write your customers, "ARKUX9 Hosting customers will now receive an enhanced back end service panel" --- You upgraded Plesk from 8.0 to 8.1

• Timing - I like February, you get confused with everyone else’s increases. Also that is why I am writing this now, you need to plan.

•  You can do a calculation of how many customers you need to lose before you really start losing money (profit not revenues). A must do.

• Consider doing the increase to a selected group of customers. Monitor results and factor in all expenses. Make decisions based on facts.

• Higher end customers are generally more elastic regarding rates.

• It is easier to raise your rates on a regular basis than to do it every few years.

Most important thing in raising your rates: Communicate with your customers and staff.

Remember: Nothing raises your bottom line faster than a well thought our rate increase.

Believe me, I have a lot of experience in this area.

========== MORE ABOUT TOM ==========

New Commerce Communications

E-Mail Tom Direct