Your SlideShare is downloading. ×
HostingCon 2011 - Why Your Business May Be Worth More (or Less) To You Than A Buyer
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×

Introducing the official SlideShare app

Stunning, full-screen experience for iPhone and Android

Text the download link to your phone

Standard text messaging rates apply

HostingCon 2011 - Why Your Business May Be Worth More (or Less) To You Than A Buyer

1,384
views

Published on

Frank Stiff's presentation at HostingCon 2011 on valuing you hosting company and why buyers and sellers can see values differently.

Frank Stiff's presentation at HostingCon 2011 on valuing you hosting company and why buyers and sellers can see values differently.

Published in: Economy & Finance, Business

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
1,384
On Slideshare
0
From Embeds
0
Number of Embeds
3
Actions
Shares
0
Downloads
4
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Why your business may be worth more (or less) to you than a buyer
    August 8th, 2011
  • 2. Introduction
    Background for today’s topic
    What is your business worth to you
    Why owners and buyers can value the same businesses differently
    Real world examples
    Who we are
    Frank Stiff, President - Cheval Capital
    Ryan Elledge, Chief Operating Officer – Codero
  • 3. There are three ways to value anything
    Based on the future cash flows
    Price that someone will pay for it in the market
    Cost to build it yourself
    In hosting, the first two methods are linked. Each is based on the future cash flow of the business.
    Future cash flows converted to a value using a rate of return (aka discount rate)
    Valuing Your Business
  • 4. Valuing Your Business (Cont.)
    For example, $100/year for 5 years is worth
    $500 at a 0% rate of return
    $335 at a 15% rate of return
    $244 at a 30% rate of return
    Rate of return based on risk
    Strategic, operating & personal issues can play a role
  • 5. Why Do Owners & Buyers See Value Differently
    Market conditions
    Operating efficiency of each party
    Buyer’s business focus
    Perception of risk
    • Hidden assets and liabilities
  • Market Conditions That Lower Value
    Other sellers of similar businesses
    The buyer can purchase another similar business for less.
    Easy to grow organically
    The buyer can add customers organically for less.
    Unusual market events
    1&1
  • 6. A lot of buyers
    When organic growth is more expensive than acquisition
    Unique assets or a hot product
    Location
    Market Conditions That Raise Value
  • 7. Operating Efficiency of Each Party
    Would your company produce more or less cash for you than the buyer?
    Are there secondary benefits to the buyer from your products or customers?
    Cross sales of your products & services
    Cross sales of buyer’s products & services
    Are there personal expenses in financials that Buyer would not incur?
  • 8. Buyer’s Business Focus
    Does the Buyer want all of your business or just a portion of it?
    They may value only what they want to keep
  • 9. Perception of Risk
    Buyer’s perception of risk can have a big effect on their value
    Typical issues
    Customer base has close personal ties to owner
    Highly customized services
    Pricing significantly different than the market
    High growth rates
    Red Flags
    Poor to no financial and other business records
    Poor to no customer attrition figures
  • 10. Assets
    Non-CF assets the buyer needs (e.g. pre ARIN /15’s)
    Products the buyer can sell to their base
    IP or products/services that can be spun off into a new business
    Liabilities
    Old equipment / future capital expenditure needs
    Operational details that raise migration costs
    Pay in advance customers
    LT facilities leases
    Hidden Assets & Liabilities
  • 11. Effect on Cash Flow and Multiples
  • 12. Effect on Cash Flow and Multiples
  • 13. Effect on Cash Flow and Multiples
  • 14. Effect on Cash Flow and Multiples
  • 15. Effect on Cash Flow and Multiples
  • 16. Effect on Cash Flow and Multiples
  • 17. The cost of any activity measured in terms of what the activity you didn’t choose
    When you choose to sell your business you’re doing two things
    Giving up the cash flow from the business for the purchase price
    Getting the opportunity to do something else
    Factor in the value of “doing something else”
    Opportunity Cost
  • 18. Adverse market conditions – Don’t sell, wait, refocus business
    Buyer gets less cash flow than you do – Find a better buyer
    Buyers business focus – Find a better buyer, sell separately
    Perception of risk – Fix your financials & systems
    Rate of return requirements - Don’t sell, find a better buyer
    What Do You Do If …
  • 19. CommuniTech.net (CT) acquired by Interland in 2002 – a revenue based multiple
    CT valued its proprietary intellectual property very high – complete automation, advanced control panel
    No multiple kicker for technology; INLD intended to migrate to own (fragmented) systems
    Transaction Example
  • 20. Aplus.net (A+) spent considerable time in 2006/2007 attempting to purchase large hoster, part of a publicly traded organization
    Target had a unique, advanced platform and significant engineering talent – both needed by A+
    A+ offer was strictly revenue based; declining revenues led to decrease in offer and no transaction resulted
    Completion of the transaction could have significantly enhanced A+
    Failed Transaction
  • 21. Why your business may be worth more (or less) to you than a buyer
    Frank Stiff
    Cheval Capital
    fstiff@chevalcap.com
    Ryan Elledge
    Codero
    ryane@codero.com
    August 8th, 2011