DH Captial partner Mark Thorsheim presents a review of the enterprise hosting market
(WEB HOST INDUSTRY REVIEW) — In his “leadership perspective” presentation Tuesday afternoon, DH Captial partner Mark Thorsheim began by presenting a bit of an introduction to DH Capital, some of which I’ll skip here, just because most anyone reading this is probably already quite familiar with DH.
He moved on pretty quickly to an overview of the enterprise hosting sector, however.
In a chart showing the performance of public hosting stocks over the last 12 months, all of them outperformed the S&P 500. An index of those hosting stocks compared to the S&P 500 or S&P’s Global Telecom Index is similarly impressive.
In the private transaction market, there has been a dramatic rise in M&A activity. Those transactions are increasing in scale. Private equity is still a driving force. Multiples are strong. And there is a strong underlying debt capital market.
In the last 12 months, there have been nearly $5 billion in acquisitions in the internet infrastructure business. The 5 largest transactions account for $3.3 billion of that investment, and most of those valuations were in the 10 times EBIDTA range.
Debt market activity is also increasing. In the past 12 months, public and private debt deals have totaled more than $5 billion, with just private company transactions accounting for about $1.28 billion (that last figure is a huge increase over the previous year’s, which was more like $100 million).
The pool of lenders is getting deeper, says Thorsheim, to include commercial banks, finance companies and alternative investment funds, alongside institutional investors and Wall Street firms.
For the next 12 months, he says, we’ll see continued private equity investment activity, and continued consolidation by strategic investors. And the market for smaller debt financing deals will remain stable.
Regarding what you should do, says Thorsheim, it’s obviously a good time to sell. However, for companies with strong financials, already experiencing great growth, it might be worth taking on some debt and trying to build some more scale before attempting an exit.
He put up a list of things that investors and lenders are asking. Should more colcoation space be brought online? Is adding managed services to the offering critical? Is competition going to put downward pressure on pricing? And are valuations starting to get overheated?
He illustrated the operating costs and revenue of a hypothetical colocation facility, showing great five-year returns for the business, and illustrating why investors are so interested in the sector. He shows a similar example for managed hosting, showing similar growth patterns and returns, and illustrating a similar point about investment interest.
It might be a good time for you to start thinking about your options, he says, related to either seeking out some new financing options, or to selling your business.
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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