Common “Transaction Success” Issues when Selling or Buying a Hosting

CompanyFrank Stiff & Hillary StiffCHEVAL CAPITAL, INC.

fstiff@chevalcap.com hstiff@chevalcap.comwww.chevalcap.com

2

Disclaimer

• This presentation is for discussion purposes and is not financial advice or a comprehensive discussion of the issues involved.

• THE PURCHASE OF ASSETS OR BUSINESSES IS RISKY. SMALL BUSINESSES ARE OFTEN DEVELOPMENT STAGE OPPORTUNITIES WITH SIGNIFICANT FINANCIAL, TECHNOLOGICAL AND OPERATING HURDLES TO OVERCOME. PURCHASERS HAVE A MEANINGFUL RISK OF LOSS OF THEIR ENTIRE PURCHASE PRICE.

• Please be sure to consult your financial and legal advisors when valuing a company, considering the sale or purchase of a business or making other financial decisions.

3

Agenda

• Who we are

• What is “transaction success” when buying or selling

• Buyer “transaction success” issues

• Seller “transaction success” issues

• Where a broker/banker helps

• Q&A

4

Background – Cheval Capital

• Who we are– Investment bankers active in hosting/ISPs since 1996– Completed over 150 Hosting/ISP acquisitions including

transactions such as the Endurance/iPower merger– Member of FINRA (formerly NASD) and SIPC

• What we do – Represent buyers & sellers of internet, telecom and

related companies– Distribute a weekly listing of sellers, creating a deal

marketplace for small and mid sized companies• Who we have worked for

– Endurance Int’l Group, Rackspace, Hostopia, Midphase, Jumpline, Verio, etc. plus many other smaller companies.

5

What is “transaction success”

• For Sellers: Getting paid what and when you expect to be paid

• For Buyers: Buying what you think you are buying.

• Understand the pros/cons/risks• A timely process• Any surprises are minor• A “successful” transaction for the other

party

6

Buyer “transaction success” issues

1. Experience, Discipline and Commitment

2. Understanding what you are buying– Profitability & Cash Flow– Recurrence– Type– Accuracy– Customer existence & quality– Employees– Hidden liabilities

7

Buyer “transaction success” issues (cont.)

3. Migration & operation of the business

4. Getting what you need to run the business

• Domain names, brands, servers, routers, website, software licenses, people, etc

5. Good purchase agreement

6. Planning

7. “Transaction success” for the other side

8

Seller “transaction success” issues

1. Focus, Organization, Commitment2. Who you are selling to

• Do they have the money• Have they made acquisitions before• Do they have good references• What is the likelihood that they will close• Can they migrate/run the business• How big are they.• “Dumb money” vs “Smart money”

3. Distraction from your business

9

Seller “transaction success” issues (cont.)

4. What you are selling

5. Good purchase agreement

6. “Transaction success” for the other side

10

Where a broker/banker can help

• Established practices for buying/selling

• Market prices & standard terms

• A source of prospective buyers or sellers

• Experienced negotiator

• Ideas on how to solve problems and bridge valuation gaps

11

Summary

• Successful sellers/buyers focus upfront on the details

• Gain experience or hire it (or both)

• It is in your interest for the other side to have “transaction success”

Questions?

fstiff@chevalcap.com

hstiff@chevalcap.com

www.chevalcap.com

13

Disclaimer

• This presentation is for discussion purposes and is not financial advice or a comprehensive discussion of the issues involved.

• THE PURCHASE OF ASSETS OR BUSINESSES IS RISKY. SMALL BUSINESSES ARE OFTEN DEVELOPMENT STAGE OPPORTUNITIES WITH SIGNIFICANT FINANCIAL, TECHNOLOGICAL AND OPERATING HURDLES TO OVERCOME. PURCHASERS HAVE A MEANINGFUL RISK OF LOSS OF THEIR ENTIRE PURCHASE PRICE.

• Please be sure to consult your financial and legal advisors when valuing a company, considering the sale or purchase of a business or making other financial decisions.

Common “Transaction Success” Issues when Selling or Buying a Hosting

CompanyFrank Stiff & Hillary StiffCHEVAL CAPITAL, INC.

fstiff@chevalcap.com hstiff@chevalcap.comwww.chevalcap.com