Equity Value range ( m) - DHH International · set to be an ideal operator to capture the untapped...

INVESTMENT OPPORTUNITY

March 24th

, 2016 III

The Internet service platform of the emerging markets of Europe A hosting and SaaS service provider for SMEs in the European emerging digital economies

Dominion Hosting Holding is building a multi-national, multi-service group of web hosting and technology

companies to offer digital solutions, aimed at small and medium enterprises, in Italy and emerging Eastern and

Central European economies.

Established in July 2015, the initial group, comprising of three companies, manages over 200,000 registered

domains in Slovenia, Italy, Croatia and Serbia, with 2015 aggregated net sales of €3.5m and a clear leadership

position in Slovenia and Croatia.

Promising markets poorly served by large industry players

The targeted European digital emerging companies such as Italy, the Balkans and Central and Eastern Europe

show ample unlocked potential compared to the more digitally advanced European economies. DHH will fill this

gap by offering localized domain & hosting services, complemented by high-quality customer care and new value-

added cloud applications, which larger competitors do not effectively provide.

Meticulous M&A activity

DHH has a well-defined acquisition plan to capture revenue-generating digital companies active in domain &

hosting services and other products targeted at SMEs in their local geographies, at an early stage of

development. DHH will leverage on its integrating skills and competencies, in order to spur, in the investee

companies, the acceleration of organic growth and the launch of new business applications locally developed.

Shared services would then be spread across the network of local businesses resulting into an integrated business

offering to culturally diversified geographies, where there is a need of English-language applications for export

and innovation-oriented SMEs.

Value creation for a growth stock

DHH in view of a possible IPO looks to satisfy the requisites of a growth stock. Expected accelerated growth

derives from the unique approach of building an aggregator in the digital emerging European geographies. DHH is

set to be an ideal operator to capture the untapped demand for user-friendly digital suites in the emerging non-

English speaking countries, whose SMEs need a web bridge to the rest of Europe and other Western economies.

Key projections – Net sales (€m) - As-is and acquisition scenario

3.54.1

4.55.0

2015PF 2016E 2017E 2018E

Equity Value range (€m)

Base Scenario Acquisition Scenario

10.0

8.0

4.9

Source: EnVent Research

Luigi Tardella – Co-Head of Research [email protected] Viviana Sepe – Research Analyst [email protected] EnVent Capital Markets Ltd. - 25, Savile Row - London W1S 2ER – UK Phone +44 (0) 20 35198451

This document may not be distributed in the United States, Canada, Japan or Australia or to U.S. persons.

1

Overview of Dominion Hosting Holding (DHH)

Growth company, profitable, strongly cash flow positive, with almost zero

debt

International operator, with strong presence in Italy and market leader in

Slovenia, Croatia and Serbia

Experienced and committed management team with a strong track record in:

1) Bootstrapping successful technology businesses. Four companies

established in the last ten years, developing them from zero to multimillion

dollar businesses

2) Executing cross border acquisitions. Six successful international acquisitions

in the last three years

3) Listing and managing companies on the public stock markets: Two IPOs on

the Italian Stock Exchange in the last five years

Mission

Established in July 2015, DHH aspires to be a reference point in the hosting and

SaaS industries in European emerging digital economies in which Internet

penetration is still in an initial phase such as Italy, the Balkans (Slovenia, Croatia,

Serbia, Bosnia, Albania, Macedonia, Montenegro, Greece) and Central-Eastern

Europe (Bulgaria, Romania, Slovakia, Hungary).

DHH is operating a market consolidation, on the belief that these disregarded

geographies have a great potential for growth.

The opportunity

The emerging digital markets of Europe are still behind with regards to Internet use

and to its integration with digital technology.

Source: Company data

1. INVESTMENT CASE

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DHH, gaining a leadership position in these markets, wants to take advantage of the

natural growth trend that is already in place in filling the gap with the more mature

geographies.

The global challenge

The emerging digital markets of Europe can be also seen as experimental markets

to test and to successfully launch global digital businesses, thanks to the amount of

human talent present in these geographies and to the lower labor cost that is very

competitive.

Key milestones

July 2015 -> Establishment of DHH

October 2015 -> Investment in Domenca / Domovanje in Slovenia

November 2015 -> Investment in Plus Hosting in Croatia and Serbia

December 2015 -> Investment in Tophost in Italy

Year one achievements

After less than one year of operations DHH encompasses:

4 companies

45 people

90,000 customers

200,000 domains

A small but multinational company:

1/3 of revenues in Italy

1/3 of revenues in Slovenia

1/3 of revenues in Croatia and Serbia

Market leadership positions in Slovenia, Croatia and Serbia

Net sales in 2015 were €3.5m, with €500k of EBITDA and €400k of free cash flow.

Historical background

All the companies acquired by DHH were stable, profitable and strongly cash flow

positive.

Since being founded, each company grew organically reaching the current size, with

little or no use of debt and with strong cash flow.

After the acquisitions, DHH is working to improve the performance of all the

portfolio companies (growth, margins) utilizing the value-added services provided

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by its “Centers of Excellence”.

Value proposition

Each of the local companies, although market leaders in their country, is too small

to effectively support their own specific business processes such as marketing,

business development and internal IT systems (billing, provisioning).

DHH has created at the group level three Centers of Excellence (CoE) providing

specialized value-added services serving the needs of local companies with more

efficiency and greater technical prowess:

1. Growth Center of Excellence

2. Tech Center of Excellence

3. Operations Center of Excellence

The ultimate goal of the Centers of Excellence is to increase the organic growth and

improve the efficiency and the margins of the portfolio companies.

Drivers

Industry drivers

Increasing regular Internet use. In 2014 people in the EU using Internet at least

once per week increased by 14% vs. the previous year, reaching the 75% EU

Commission target set for 2014. E-commerce by EU citizens progressed more than

14% on prior year, reaching a level of 50% of EU citizens, in line with Internet take-

up. (Source: European Commission, Digital Agenda Scoreboard 2015 – Targets

Progress report)

A gap to fill for e-commerce. In Europe 35% of large companies sell online (+6%

over the last five years), while only 14.5% of Small/Medium-sized Enterprises

(SMEs) marketed their products/services online (+3.5% over the last five years).

(Source: European Commission, Digital Agenda Scoreboard 2015 – Targets Progress

report)

SMEs are the engine of growth. European SMEs accounted for 99.8% of enterprises

in the non-financial sector in 2014, generating 58% of the total value added. 93% of

SMEs employ less than ten people. (Source: European Commission, Annual Report

on SMEs 2014/2015)

These businesses often do not have the resources necessary to invest in custom-

made applications to manage the relationship with their customers and their

marketing activities. Demand is strong for a new generation of user-friendly

applications which improve and sharpen the tools used to connect and cultivate the

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relationship with their current and potential customers.

New enterprises are increasingly created by millennials (Generation Y people, born

in the Internet era, between the early 1980s and the early 2000s), who usually

initiate a business first by creating a website and later are yearn to expand the use

of web tools and applications.

New domain names will boost revenues and margins. ICANN, the governing body

of the Internet, has recently approved over 1,300 new domain extensions called

gTLDs (Generic Top-Level Domains). The approval process started at the end of

2013 and is still ongoing. When the new gTLDs become a larger part of the overall

domain market, this will help both revenue and margin growth. New domain

extensions will change the digital landscape and offer customers new opportunities

to present themselves online, expanding the previous limited address space and

increasing the flexibility for personalized names. Along with giving the customer

base a wider mix of domains to differentiate themselves on the web, this will also

give the opportunity to sell domains at a premium price compared with the most

popular .com, generating Average Revenue Per User (ARPU) increases.

Internet power shifting from the Registry to the Registrar. The domain name

industry is composed of Registries, that manage the information on who owns the

domains, and of Registrars, which take the registration request and reserve a

domain at the main Registry. Until now the Registry, which encompasses the entire

universe of .com domains, had obviously a dominant position. Now, with over 1,300

new gLTDs, the power is set to shift from the Registry to the Registrar and this puts

the DHH group of companies in a good competitive position.

Acquisitions at premium multiples. Deal activity for hosting companies is likely to

continue to run at a strong pace, according to Mergers Alliance, with strategic

transactions making up the majority. Consolidation will be the key driver as buyers

seek to achieve economies of scale, improve offerings, acquire technology and

expand internationally. Within this framework, DHH is negotiating with the local

market leaders at acquisition multiples below the industry average, while the

consolidators, such as DHH, are expected to command multiples well over the

industry average (Endurance International Group or Host Europe Group are

examples).

Company drivers

Highly scalable business model. Infrastructure and management costs shared

among a growing number of companies and customers give room for an aggressive

pricing policy and higher operating margins.

Visibility of future revenues. A strong customer loyalty, implying a high client

retention rate, allows for resiliency in the revenue stream. The annual upfront

subscription fee scheme, with automatic renewal, provides for significant recurring

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revenues and immediate cash conversion.

Premium customer service. The reputation of outstanding service, upon which

market leading status in Slovenia and Croatia was built, is the main competitive

advantage and barrier to entry for international giants unfocused on offering

premium localized services.

New products dedicated to SMEs. The launch of new products dedicated to SMEs,

such as applications to increase web visibility and business productivity, facilitated

by the Company’s leading market position and cost, will represent a key driver for

revenue and margin growth.

International expansion. DHH currently offers a custom-local product in four

countries (Slovenia, Italy, Croatia, Serbia). In 2015 foreign operations accounted for

roughly 65% of revenues, with the rest coming from Italy. Targeted markets such as

the Balkans and Eastern Europe have significant untapped potential and can lead

revenue and earnings growth from 2016 and beyond.

Brand awareness. This is crucial, as it usually characterizes companies providing

stable, fast, and reliable web hosting services, which have a true staying power and

will outlast their competitors. DHH companies have been on the market since 10-15

years and have built strong brands, recognized for high quality and customer

service.

Company builder. DHH’s strategy is to acquire high-tech companies in the fields of

hosting and marketing-technology services aimed at SMEs. This will be

accomplished by combining financial resources, incubation, corporate services,

mentorship, management and network opportunities for potential targets.

Track record in M&A. The Management of DHH has a proven track record of

identifying, executing and integrating acquisitions, with a hyper-focused strategy

leading to meticulous deal scouting and completion.

In the last five years they have successfully executed six cross border acquisitions,

one turnaround and two IPOs on the AIM Italia market.

The key managers are also shareholders of DHH and will be directly involved in

carrying out the Group’s growth strategy.

Challenges

Competition from the tech giants. Large global players, originally focused on

English-speaking markets, are entering local markets with a geo-localized offering.

The best example is GoDaddy, whose sites, domain & hosting products and

customer care are now available in 26 languages and 53 markets globally. However,

6

global digital players are typically unable to gain a market leadership position in the

local markets due to their language barriers, poor knowledge of the local

environments and of the local marketing processes. For these reasons, the global

tech giants generally look at the local leaders as possible acquisitions when wanting

to access the local markets (Emailvision or the expansion strategy of Aruba and

Host Europe Group are examples).

Pricing trends of new gTLDs. The business should get a lift of revenue and profits as

new gTLDs grow in the mix of domains sold, but if they were commoditized towards

.com pricing, this advantage could vanish. The maturity of lifecycle in the Registrar

space have caused .com and .net domains to become commoditized, providing little

upside in terms of margins.

Performance of small size players. Mid-term financial sustainability is a risk factor

when evaluating investment into a new venture. However, DHH group companies

are already revenue and profit generating, despite their size.

7

Helping European SMEs to grow

their business online

Track record in the execution of

strategic acquisitions to integrate

web hosting companies into DHH

portfolio

DHH as a digital service provider for SMEs

DHH is an aggregator of web hosting companies located in Slovenia, Italy, Croatia

and Serbia offering domain & hosting services. Its corporate mission is to acquire

technology companies in European non-English speaking emerging digital

economies, which provide SMEs with a comprehensive multi-suite of digital

solutions aimed at establishing, building and increasing online presence and

visibility. These markets are currently poorly served by large industry players.

Corporate mission


Key developments

Set up in July 2015, DHH was founded by Seeweb Srl, an Italian cloud computing

firm and hosting services provider, and Giandomenico Sica, an entrepreneur in the

Italian technology industry.

DHH immediately carried out its corporate strategy by acquiring the leading hosting

providers in the following target geographies: Slovenia, Italy, Croatia and Serbia.

Key acquisitions

October 2015 December 2015November 2015


2. PROFILE

8

Portfolio

Domenca

Domenca, part of the Klaro group, was the first company to offer domain name

registration services to Slovenian customers in local language, starting from 1999. It

is the only company in Slovenia offering all country code TLDs (ccTLDs) and also

provides domain portfolio management services to some of the largest Slovenian

companies.

Highlights:

- Successful turnaround by the founders of DHH in 2012

Domovanje

Domovanje started as a side project of Klaro and was spun off as an independent

company in 2005. The focus of Domovanje is customer service, automation and

standardization of business practices. Its customer base grew over the years and in

2012 the company was among the three largest hosting providers in Slovenia.

Afterwards, Domovanje successfully managed the acquisition of its larger

competitor Domenca.

Today Domenca and Domovanje together represent the leading Slovenian domain

registration and web hosting services provider with 47,000 domains registered and

20,000 customers, with an over 30% market share.

Highlights:

- Established by the founders of DHH

- 47,000 domains

- 30% market share

Plus Croatia

Plus was founded in 2001 in Croatia. Through organic growth and some acquisitions

of small local players, it quickly became the largest hosting services provider in

Croatia with a 23% market share and twice the size of its nearest competitor. Plus is

recognized for its technical competence and high quality of customer service. The

company hosts some of the largest websites in the region.

Highlights:

- 13,000 domains

- 23% market share

Plus Serbia

Plus Serbia entered the market in 2010, has a dedicated business plan for Serbia,

enjoys the highest yoy growth in the whole group and is now among the top ten

registrars for .rs ccTLD.

9

Tophost

Tophost, founded in 2004, is the first Italian low-cost web hosting service provider

and the third in terms of number of domains (over 140,000, for a market share of

5%). The company is one of the top three preferred providers thanks to innovative

shared platforms and services and a very competitive pricing. Tophost established

itself very quickly also for an advanced purchasing system, technical infrastructure

and a fully automated activation system.

Highlights:

- Established by the founders of DHH

- 140,000 domains

- 5% market share

- EBITDA increase of over 100% after the acquisition

10

Shareholders

Seeweb Srl36.0%

Giandomenico Sica20.0%

Matjaž Jazbec 10.8%

Uroš Čimzar 10.8%

Matija Jekovec 10.8%

Martin Romih 10.8%

Koštial Tomaž 0.7%


DHH was originally founded by Seeweb Srl (60%), an Italian cloud computing firm

and hosting provider controlled by Antonio Baldassarra, and Giandomenico Sica

(40%).

In the acquisition process completed so far, the founders of Klaro, a Slovenian

company, have entered DHH’s capital and now own together 44% of DHH, while the

original founders, Seeweb and Giandomenico Sica, were diluted and own the

remaining 56%, respectively 36% and 20%.

Group structure

100% 100%

100% 100%100%


3. GROUP

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4. MANAGEMENT

Name Role Background

Antonio Baldassarra

Shareholder (through

Seeweb) -

Co-founder

- Bootstrapping of Seeweb

- Founder and CEO of Seeweb (Italian company in the field of IT services, cloud computing, data

centers)

- Business angel and advisor of startup initiatives in the field of Internet and cloud computing

- Chairman of the Hosters and Registrars Association, Member of the Technical Committee and of the

Board of Directors at Rome Nautilus Mediterranean Exchange (Namex)

- Former Member of the ccTLD Steering Committee (CIR) of .IT registry at IIT-CNR in Pisa

- Over 25 years of experience in electronics and ICT

Giandomenico Sica

Shareholder -

Co-founder -

Executive Chairman

- IPO of Digital Magics (2013) and MailUp (2014) - 3 M&A for MailUp (2015) - Acquisition of Klaro and

Tophost (2015)

- Shareholder and Head of Corporate development of MailUp (E-mail Service Provider, listed on AIM

Italia)

- Chairman of Acumbamail (e-mail marketing company for Spanish-speaking markets)

- Founder of Polimetrica (international publishing)

- Founder of Grafo Ventures (corporate finance boutique focused on digital media)

- Former Partner of Digital Magics (venture incubator of digital startups, listed on AIM Italia)

- Entrepreneur in the field of technology and technology-enabled services

Uroš Čimzar

Shareholder-

Co-founder -

CEO

- Bootstrapping of Domovanje - Acquisition of Domenca

- Co-founder and CEO of Klaro

- Finance, business development, marketing

- Over 15 years of experience in the web and hosting industry

Matija Jekovec

Shareholder -

Co-founder -

COO

- Bootstrapping of Domovanje - Acquisition of Domenca

- Co-founder of Klaro d.o.o. and Domovanje d.o.o.

- Head of R&D, Klaro

- Guest lecturer at the Faculty for Electrical Engineering, University of Ljubljana

- Previously Developer, with technical background in computer science

- Software architecture and design, agile development practices and system administration

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The domain: the starting point

for connecting businesses with

their online audience

Business lines:

- Domain registration

- Shared Hosting

- Dedicated Hosting

- Productivity tools

The domain & hosting business

Mission

DHH’s mission is to provide SMEs with simple and flexible digital products to

establish, build and increase online presence and visibility and to enhance business

productivity.

Products designed for SMEs

Domains and hosting

The domain name business is DHH’s main revenue stream and source of new

customers.

The domain & hosting products offered by group companies address local non-

English speaking markets.

A domain name is as an address on the Internet for each website. Top-Level

Domains (TLDs) fall into two categories: generic (gTLDs) and country code (ccTLDs).

DHH Group companies market both generic and country code extensions.

DHH offers several web hosting services through dedicated servers.

New products

DHH intends to launch new SaaS (Software as a Service) products designed for

SMEs, which will be also dedicated to English-speaking businesses, in three areas,

completing its presence in the area of digital solutions for SMEs:

Web presence and marketing: e-mail and SMS marketing software, tools to

improve automatically the search engine rankings of the websites, e-

commerce platform, website builder, template builders

Business productivity: business apps, invoicing, Customer Relationship

Management, internal messaging, IP telephony, helpdesk solutions

Infrastructure / internal IT outsourcing

New products will represent a key driver for margin growth and cross-selling/up-

selling opportunities within the domain and hosting business, being the price higher

for value-added products if compared to standard domain & hosting products. New

products will have the same business model of domain & hosting products, being

based on annual recurring revenue.

5. BUSINESS MODEL AND STRATEGY

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Business model:

- Sale of subscriptions (yearly)

- Advanced payments

- Recurring payments

Strategic product positioning

DHH Today

Buy a domain

Hosting

• E-mail• E-commerce• Security

Build a website

Add functionalities

Optimize / Get found

• SEO• Mobile

DHH Tomorrow


Market logics and buyer’s decision process

Decision-makers in SMEs are typically the business owner and the IT consultancy

agency.

Key factors underlying the buying decisions for web hosting services are:

- Stability and reliability of the services provided

- Performance, speed and uptime

- Pricing

- Flexibility

All the companies in the DHH group are best-in-class with regards to quality of

service (ranked 5 out of 5 by customers), reliability of infrastructure and customer

success, operating dedicated team of about 20 people focused on customer care.

The Group is also flexible in launching new products in the marketplace and

adapting the offering to customer needs.

Sales channels and marketing

DHH reaches small businesses through the websites of its companies, based on

inbound online marketing strategies.

The marketing strategy is tailored to specific target groups. The brands in DHH’s

portfolio are positioned differently and target different user groups: Tophost is for

low-cost domain & hosting users; Klaro Group’s brands are devoted to high quality

users.

Customers

The portfolio of DHH at the end of 2015 includes 90,000 customers and over

200,000 registered domains.

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Domains under management by geography, 2015

Slovenia47,000Italy

140,000

Croatia + Serbia18,000


Thanks to DHH small businesses in the Euro-Mediterranean area can find their

favorite hosting provider in their own country and in their spoken language.

Customer care is paramount in order to gain and maintain competitive appeal:

Klaro and Plus offer 24/7 dedicated phone assistance and technical services; Klaro

has a money-back guarantee; Plus analyzes its response time as part of its KPIs.

Pricing

The pricing strategy is diversified, based on the Group companies:

- Tophost offers in Italy basic services at very competitive fees (from €5.99 for

domain name registration to €19.99 for hosting and domain name)

- Klaro Group’s companies offer high quality services at market standard fees

(from €17.48 for domain name registration to €24 for entry level hosting)

Staff

DHH has a staff of 45 units:

- Klaro Group: 21 employees

- Tophost: 3 employees

- Plus Croatia: 19 employees

- Plus Serbia: 2

Out of the total headcount, over 20 people are employed in the customer service of

Klaro and Plus Croatia.

Competitive advantages

Economies of scale represent a key success factor, since every new customer

enhances the profitability of the developed products. The greater the number

of customers, the greater the profit will be.

Exportability of the applications, which can be deployed by all the hosting

providers in the group

Long-lasting customer relationships, giving way to stable and predictable sales

15

and earnings

Strong skills in the e-commerce industry, to serve clients in such fast growing

market

Internal R&D development capabilities

Contractual commitment of customers via fee-based, fixed-term subscriptions

Group expansion strategy

DHH plans to:

- Penetrate Balkans and Central-Eastern European markets (non-English

speaking, poorly served by larger industry players), geo-localizing its suite of

domain & hosting products

- Penetrate English-speaking markets with a suite of digital products designed

for SMEs, developed by fast growing companies operating in the target

geographies. The strategy to approach English-speaking markets allows

vertical deployment of services to those market niches that are not typically

covered by the big players

- Establish itself as a pan-European domain & hosting provider through organic

growth of the group companies (retaining existing customers, up-selling,

acquiring new customers) and new acquisitions

Expansion strategy

Suite of digital advancedproducts designed for SMEs,developed by fast growingcompanies operating in thetarget geographies

English-speaking markets

Geo-localized suite of Domain& Hosting products

Balkans and Central-Eastern Europe


16

Shared support services

Company builder and integrator

The accelerated growth program of DHH is based on the investment in high-

potential technology businesses in the European emerging digital economies,

supporting them with initial financial resources, mentorship, corporate functions

and marketing know-how. These skills are proven by the fast build-up of the initial

bulk of companies.

DHH’s most important strength, on its way to become the SME’s preferred

technology partner, is its ability to provide strategic-minded and leading-edge

solutions which facilitate hosting services companies heighten their business and

maximize their presence on the market.

DHH will support the investee companies to achieve three goals:

Better service to existing customers

Launch of global products based on the existing in-house hosting expertise

Become a company builder platform to gain early traction SaaS products

Better service to existing customers

Currently the group companies, despite the leading position in their respective

countries, are still too small to effectively provide specialized services as marketing,

business development and internal IT management systems (billing, provisioning).

Moreover, these companies have yet to develop internal IT systems in line with

local regulations, due to their limited size with regards to their diversified product

portfolio offering.

To help the companies achieve this, DHH will centrally establish Centers of

Excellence for functions needed by individual companies. These shared support

services will boost better services for local customers.

Launch of global products

Group companies have local domestic specializations leading to a better service for

a given kind of customer. These local services can not be globalized, as companies

on their own do not have the resources needed.

The formation of CoE will allow to fund and launch these products or services

globally, in a cost-efficient manner and outstanding technical prowess.

Management expects the first launch in 2016.

Meticulous M&A skills

In acquiring future potential hosting companies, DHH has a strict investment

strategy outlined in the following table.

17

Screening process of the target companies - Criteria

Sector Digital, with focus on domain & hosting and digital products for SMEs

Geography Emerging digital economies: Italy, Balkans, Central-Eastern Europe

Stage of

developmentEarly, with limited operating history

Size€100-500k in revenues for SaaS companies

€1-2m for hosting providers

Transaction type Acquisition of 100% of share capital

Exit strategy Not foreseen


DHH’s goals with regard to the investee companies are:

- Accelerate organic growth through marketing efforts

- Adapt in English the business applications developed locally in the Group

companies to cross-sell them in English-speaking markets

- Maintain the companies in portfolio to grow them organically (no exit

strategy)

The main characteristics of DHH’s activity as a company builder are:

- No start-up risk, being investments already revenue-generating

- DHH will continue to pursue the companies growth process with a long-term

perspective

- DHH can leverage on its marketing capabilities to cross-sell new products

In each targeted local market there are several SaaS product companies which are

essentially managed by one/two-people. These are limited in size and

internationalization is difficult for them because of the insufficient resources.

DHH can offer such companies knowledge and support through the CoE, in addition

to group wide distribution by way of the existing customer base.

DHH is willing to offer its targeted shareholders equity deals which will allow them

to take part in the project. The management of DHH expects to complete the first

deal of this kind in 2017, at the latest.

Integrator skills

DHH’s organization will comprise of a group of local Country Departments, bound

by geography, together with a set of centrally managed Centers of Excellence, each

in charge of specific business functions. Country Departments are responsible for

first level support, along with the selection and implementation of specific

marketing and sales strategies developed at the Group level. CoE are responsible

for all business support services, excluding finance, accounting and HR. To date,

DHH has established three CoE.

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Centers of Excellence

GrowthTech

Operations

- System administration & IT support

- Infrastructure architecture

- Groupwide network maintenance

- Managing the group infrastructure

- Key account management for large clients

- Operational HR

- Internal IT development

- Hosting product development

- System’s integration

- Financial resources

- Operational HR

- IT and technology support

- Customer acquisition

- Products pricing

- Customer experience

- Marketing playbook

- Content strategy

- Strategic marketing

- Marketing and sales


Use of proceeds

The use of proceeds is 100% for the acquisition of new companies (M&A). DHH’s

growth plan is focused on the acquisition of companies that the Group will be able

to optimize post-acquisition, improving the growth profile and the profitability

through the use of its “Centers of Excellence”.

The M&A strategy is focused along three lines:

1. Consolidating the markets in which DHH is already present (Italy, Slovenia,

Croatia and Serbia), in order to make its leadership position stronger

2. Entering new geographies (e.g. Bulgaria Romania, Albania, Macedonia and

Montenegro) buying the leaders and then consolidating the market

3. Acquiring small multi-national companies active in English-speaking markets

optimizing and accelerating them through its Centers of Excellence

The ultimate goal is to become a leader:

- In the hosting industry in the emerging markets of Europe

- In the vertical niches within the hosting and SaaS industry globally

19

Relentless rise in Internet use

and e-commerce

30% of companies do not

have a website

European web divide shows target countries’ potential

Internet has become a medium for information, communication, organization and

business, now driven by broadband access. Thanks to its availability from any

location and to the rise in access speeds, Internet is a universal infrastructure

served via mobile or fixed-line networks.

In 2014 the number of EU individuals using Internet at least once per week

increased by 14% vs. the previous year, reaching the 75% EU Commission’s target

set for 2014. Slovenia, Croatia and Italy haven’t reached the EU target yet.

Exhibit 6.1

Source: European Commission, Digital Agenda Scoreboard 2015 – Targets Progress report

97% of enterprises in the EU had an Internet connection in 2014 (Source: European

Commission, Digital Agenda Scoreboard 2015 – Use of cloud services). Internet

opens up new business opportunities and sales & marketing channels. As

businesses, especially SMEs, must be connected with their customers, as they need

to secure existing customers and attract new ones, usually new businesses start by

creating a website.

Around 70% of enterprises with at least 10 employees had a website in 2014 (+8%

vs 2010). Looking at the percentage of companies having a website or homepage,

Italy and Croatia are below the European average, while Slovenia is among the

leading countries. Whilst the number of companies with a website has increased

significantly over the 2010-2014 period, growth with regards to complementary

web services (for example electronic access to catalogues and brochures with

prices) is slightly lower. (Source: ISTAT on Eurostat data, Internet@Italia 2014).

6. MARKET AND TRENDS

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Regular Internet Users (at least once a week) in 2014 (%)

20

E-commerce: a missed

opportunity for SMEs, with great

untapped potential

Exhibit 6.2

Source: ISTAT on Eurostat data, Internet@Italia 2014

E-commerce is becoming a vital channel in sales strategy. In 2014 e-commerce by

EU citizens progressed more than 14% on prior year, reaching a level of 50% of EU

citizens, in line with Internet take-up. In Europe 35% of large companies sell online

(+6% over the last five years), while only 14.5% of SMEs sold their products/services

online (+3.5% over the last five years). The gap between SMEs and large companies

has increased over last years. European SMEs continue to miss out on the

opportunities of e-commerce. The best performing countries in this regard include

the Czech Republic, Denmark and Croatia, but they are far from reaching the 2015

EU target of 33% of companies per country with online sales >1% of turnover.

Exhibit 6.3

Source: European Commission, Digital Agenda Scoreboard 2015 – Targets Progress report

0

5

10

15

20

25

30

35

40E-commerce by SMEs (% of companies with online sales > 1% of turnover)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Companies (> 10 employees) with a website or a homepage in 2014 (%)

21

Addressable market of EU SMEs:

a large opportunity

The market at large

European SMEs accounted for 99.8% of enterprises in the non-financial business

sector in 2014, generating 58% of the sector’s value added. 93% of SMEs employ

less than ten people. (Source: European Commission, Annual Report on SMEs

2014/2015)

The domain name & hosting industry: strong demand

The web domain & hosting industry is diverse and multi-layered, both in terms of

geographies and product offerings, which vary from domain name registration and

web hosting to managed hosting and cloud services.

Strong demand still exists for basic web hosting services from European small

businesses and lower mid-market companies, since large numbers of companies

still lack capabilities beyond managing a basic web presence.

Exhibit 6.4


The market cap of the public companies in this field is 200bn, while 10 years ago it

was 17bn.

Each computer has a unique address on the Internet. The domain name represents

a specific Internet Protocol address (in numbers). Each domain, such as

www.dominion.it, is composed of a Top-Level Domain (.it), marketed by Registry

Operators, and a Second Level Domain (dominion), marketed by Registrars.

Top-Level Domains (TLDs) fall into two categories: generic (gTLDs) and country code

(ccTLDs). The most common gTLD is .com which has over 115 million domains;

others are .net, .org, .info, .biz etc. In 2013-2014 ICANN introduced hundreds of

new gTLDs to help ease the maturity in .com. ccTLDs are two character domains

associated with countries such as .it (Italy).

ICANN, the governing body of the Internet, is approving over 1,300 new gTLDs.

Customers will choose from a wider selection of gTLDs (.club), location and

http://www.dominion.it/

22

geographic domains (.london), branded (.nike) and professional domains (.lawyer).

According to Verisign, the Registry Operator for the .com gTLD, the third quarter of

2015 closed with around 299 million domain name registrations across all TLDs,

+1.1% over Q2 2015. Registrations have grown by 14.8 million, +5.2% yoy. The .com

and .net TLDs experienced aggregate growth, reaching a combined total of

approximately 135.2 million domain in Q3 2015, +3.4% yoy.

The largest TLDs by zone size were .com and .tk.

Exhibit 6.5

Top 10 largest TLDs by zone size in Q3 2015

Source: Verisign, The domain name industry brief, Vol. 12, Issue 4, 2015

Steady quarter-over-quarter growth in the domain name industry continues.

Registrations of country code domains outpaces that of the total TLD market and

the growth in gTLDs. The growth rate for the overall domain industry has slowed as

the market became more mature.

Exhibit 6.6

Global TLD registration trend

Source: Verisign, The domain name industry brief, Vol. 12, Issue 4, 2015

23

Focus on Italy: approaching 3m registered domains

2015 closed with 2,869,000 registered domains in Italy. The overall 2007-2015

CAGR was 8%.

Exhibit 6.7

Registered domains in Italy

1.51.7

1.8

2.1

2.32.5

2.62.8

2.9

0.3 0.3 0.30.4

0.5 0.5 0.5 0.5 0.5

-0.1 -0.2 -0.2 -0.2 -0.3 -0.3 -0.4 -0.4 -0.4

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2007 2008 2009 2010 2011 2012 2013 2014 2015

Domains in Italy

N. domains New registrations Cancellations Source: Registro.it, Statistiche Q3 2015, 2016

24

Competing in today's tech-centric world

Domain names and web hosting services are commoditized products in today's

tech-centric world.

DHH companies compete in the domain & hosting industry where the breadth of

products and services provided is diverse and multi-layered in terms of geographies

and product offerings. Suppliers have no power and substitute products/services do

not constitute a significant threat. Barriers to entry are typically low and customer

power is average. Competition is intense on pricing, based on aggressive marketing

campaigns, driven by low cost offers.

Competitive forces

SuppliersRivalry among

existing firms

Substitutes

New entrants

Customers

• Continuous generation of new products in the industry

• Intense competition• Competition on product

quality• Dominant competition from

large global firms

• Low barriers to entry• Several large Domain &

Hosting companies provide solutions to resellers

• Low power • Average power• It is difficult for a customer

to understand the difference between

standard products


The main competitive factors in the arena are:

- Product reliability and performance

- Integrated solution offering

- Customer service

- Pricing

- Cost management

There is a geographic divide across Europe, whereby more complex services are

sold by pan-European providers in the North, while local suppliers in

Southern/Central Europe are the norm.

The more sophisticated hosting providers are able to partner with other vendors to

provide value-added services to a wider range of geographic areas.

7. COMPETITION

25

DHH’s positioning in the industry

Industry players and value chain

ICANNIANA:

coordination

Registry Operators:wholesale

Registrars:distribution

Resellers:resale

Registrants:consumers


The regulatory body for TLDs is the Internet Corporation for Assigned Names and

Numbers (ICANN), which oversees the industry and coordinates the domain name

system. ICANN authorizes the Registry Operators and gives accreditations to

Registrars. It is the Registry Operator’s responsibility to maintain the information

regarding a particular domain and ICANN gives the Registry exclusive rights to each

TLD. For example, Verisign is the sole Registry of .com and NeuStar for .biz and .co.

Registrars receive the supply of domains from Registries and sell them to end-users.

What the Registrar is selling to the individual or company that wants to have a

website is a Second-Level Domain.

Registrants (end-users, individuals or businesses) purchase domains at Registrars’

that reserve the domain at a Registry.

Competitive trends

The major trends for the competition in the Domain & Hosting business are:

- Large global players entering the arena. Large global players, originally

focused on English-speaking markets, are entering selected local markets with

a geo-localized offering. The best example is GoDaddy, whose sites, domain &

hosting products and customer care are now available in 26 languages and 53

markets globally.

Global digital players, despite their size and strength, are typically unable to

gain a market leadership position in the local market due to language barriers,

26

Too many barriers, impeding

global players expansion

that are substantial, and to their poor knowledge of the local environments

and of local marketing processes.

The different language, the support that is usually offered in a different time

zone, the difficulty to understand the specific and non-standard needs of the

local customers, the differences in digital payment technologies and invoicing

policies create a barrier for the global players that obstructs their entrance in

the local markets.

For these reasons, the global tech giants generally look at the local leaders

when they want to access the local markets. DHH has a strong competitive

advantage focused on the capability to adapt its offering and its products to

the needs of local customers, thanks to its deep knowledge of the market

environment and of its customers.

- Challenge from new entrants. Potential new competitors can enter the

marketplace without significant obstacles and large industry players could

either build their competences in-house or acquire smaller players. However,

fragmentation in small markets and language issues puts a question mark on

business sense from a cost/revenue point of view for large players to invest.

- Consolidation. Deal activity for hosting companies is likely to continue to run

at a strong pace, according to Mergers Alliance, with strategic transactions

making up the majority. Consolidation will be the key driver as buyers seek to

achieve economies of scale, improve offerings, acquire technology and

expand internationally.

Leading market shares in Slovenia and Croatia

Klaro Group and Plus, DHH’s web hosting providers in Slovenia and Croatia are

recognized as local market leaders.

Market shares in Slovenia and Croatia

Klaro Group31%

2nd player14%

3rd player7%

Other players <10%48%

Slovenia

Plus23%

2nd player15%

3rd player11%

Other players <8%51%

Croatia

Source: Company data on 2014 revenues of Slovenian and Croatian companies, publicly available in the business

register

In Italy Tophost’s market share can be estimated based on the number of its

27

registered domains, given the lack of information on the domain market size. With

around 140,000 domains, Tophost has a market share of approximately 5% on a

total of 2,869,000 registered domains in Italy in 2015. Tophost is the third

webhosting provider after Aruba and Register.it (Dada Group) in terms of number

of domains.

28

Fast growth path, sound margins and healthy financial position

Key growth drivers

DHH group companies are expected to grow higher than the industry average,

thanks to:

- Organic sales expansion, driven by the untapped digital potential in the

targeted geographies

- A pervasive acquisition plan, supported by Management’s proven track record

Financial projections have been drawn up according to organic and acquisition

growth scenarios.

Financial projections – Base scenario

Assumptions


The 3-year projections are based on DHH group companies proforma figures.

8. FINANCIAL PROJECTIONS

• EBITDA margin increase from 14% in 2015 to 20% in 2018 reflects operating leverageand efficiency gains

• Customer additions: +16% 2016, +10% 2017-2018• ARPU assumed stable over the three years and equal to 2015• No assumption on revenues from acquisitions• No assumption on other revenues

Revenues

EBITDA

• Trade working capital consistent with the historical level of 15 days DSO and 10 daysDPO

• Other working capital, mostly deferred revenue, consistent as historical percentage ofsales

Working Capital

• Operating expenses (services) are assumed decreasing as a percentage of revenues andhave been estimated: at 2015 level in 2016; with a more efficient cost management in2017-2018

• +25% in personnel in 2017

Operating expenses and personnel

• Average corporate tax rate of Italy, Slovenia, Croatia and Serbia assuming balancedcontributions to pre-tax income

Income taxes

29

Light balance sheet

Profit and Loss – Base scenario

€m 2015PF 2016E 2017E 2018E

Net sales 3.5 4.1 4.5 5.0

Other revenues 0.2 0.0 0.0 0.0

Total revenues 3.7 4.1 4.5 5.0

YoY % - 10% 10% 10%

Operating expenses (2.6) (2.9) (2.9) (3.2)

Gross Profit 1.1 1.2 1.6 1.7

Margin 31% 30% 35% 35%

Personnel (0.6) (0.6) (0.7) (0.7)

EBITDA 0.5 0.6 0.8 1.0

Margin 14% 15% 18% 20%

D&A (0.2) (0.2) (0.2) 0.0

EBIT 0.3 0.4 0.6 1.0

Margin 9% 10% 14% 20%

Interest 0.0 0.0 0.0 0.0

EBT 0.3 0.4 0.6 1.0

Margin 9% 10% 14% 20%

Income taxes (0.1) (0.1) (0.1) (0.2)

Net Income 0.3 0.3 0.5 0.8

Margin 7% 8% 11% 16% Source: EnVent Research – Note: Roundings may hide actual variations as per assumptions

DHH group companies generated aggregated net sales of €3.5m in 2015.

Net sales are forecasted to rise from €3.5m to €5m in 2018, with a ‘15-18 CAGR of

12%. Gross margin, which was around 30% of revenues in 2015, is expected to

stabilize at this level in 2016 and grow to 35% in 2017-2018. We are expecting

DHH’s business model to yield operating leverage and generate EBITDA growth in

excess of revenue growth, also thanks to an efficient personnel cost management.

EBITDA is set to increase to €1m in 2018 (23.9% ‘15-18 CAGR) with an increase in

margin to 20% up from 14% (€0.5m in 2015). Net Income would improve from

€0.3m in 2015 to €0.8m at the end of the 3-year plan.

Balance Sheet – Base scenario

€m 2015PF 2016E 2017E 2018E

Trade receivables 0.2 0.2 0.2 0.2

Trade payables (0.2) (0.3) (0.3) (0.3)

Trade Working Capital (0.0) (0.0) (0.0) (0.0)

Other assets 0.5 0.1 0.1 0.1

Other l iabilities (1.5) (1.6) (1.8) (2.0)

Net Working Capital (1.0) (1.5) (1.7) (1.8)

Intangible assets 0.1 (0.1) (0.3) (0.3)

Goodwill 4.2 4.2 4.2 4.2

Fixed assets 0.2 0.2 0.2 0.2

Non-current assets 4.5 4.3 4.1 4.1

Provisions (0.0) (0.1) (0.2) (0.3)

Net Invested Capital 3.5 2.7 2.3 2.0

Net Debt / (Cash) 0.1 (1.1) (2.0) (3.1)

Equity 3.4 3.8 4.3 5.1

Sources 3.5 2.7 2.3 2.0

30

Balanced working capital

Source: EnVent Research – Note: Roundings may hide actual variations as per assumptions

Investment in trade working capital is of little significance, given the nature of the

business. Other liabilities mainly represent non-accrued portion of the yearly

upfront payments (deferred revenues).

Cash flow – Base scenario

€m 2016E 2017E 2018E

EBIT 0.4 0.6 1.0

Current taxes (0.1) (0.1) (0.2)

D&A 0.2 0.2 0.0

Provisions 0.1 0.1 0.1

Cash flow from operations 0.6 0.8 0.9

Trade Working Capital 0.01 (0.01) 0.00

Other assets and liabilities 0.5 0.1 0.2

Capex 0.0 0.0 0.0

Goodwill 0.0 0.0 0.0

Free cash flow 1.1 0.9 1.1

Interest 0.0 0.0 0.0

Net cash flow 1.1 0.9 1.1

Net (Debt) / Cash - Beginning (0.1) 1.1 2.0

Net (Debt) / Cash - End 1.1 2.0 3.1

Change in Net (Debt) / Cash 1.1 0.9 1.1

Source: EnVent Research – Note: Roundings may hide actual variations as per assumptions

DHH is set to generate cash flow which will improve as shown in the chart below

indicating an EBITDA cash conversion ratio forecasted to be over 100% in 2016-

2018.

KPIs

KPIs 2015PF 2016E 2017E 2018E

ROE (beginning Equity) 7.4% 9.6% 14.9% 23.0%

ROS (EBIT/Sales) 9.2% 10.0% 14.2% 20.0%

DSO 15 15 15 15

DPO 27 27 27 27

NWC/Revenues neg. neg. neg. neg.

Net Debt (Cash) / EBITDA 0.1x n.m. n.m. n.m.

Net Debt (Cash) / Equity 0.0x n.m. n.m. n.m.

FCF / EBITDA n.a. 185.9% 112.0% 106.1% Source: EnVent Research

Financial projections – Acquisition scenario

Under the basic assumption of investing €5m in companies totaling around €5m in

sales, from 2016 to 2018, and assuming consistent P&L dynamics, DHH could reach

€10m revenues with over €2m EBITDA and €1.7m in net income, at the end of the

31

3-year time horizon.

Profit and Loss – Acquisition scenario

€m 2015PF 2016E 2017E 2018E

Net sales 3.5 4.9 8.0 10.0

Other revenues 0.2 0.0 0.0 0.0

Total revenues 3.7 4.9 8.0 10.0

Operating expenses (2.6) (3.4) (5.2) (6.5)

Gross Profit 1.1 1.5 2.8 3.5

Margin 31% 30% 35% 35%

Personnel (0.6) (0.8) (1.1) (1.3)

EBITDA 0.5 0.6 1.7 2.2

Margin 14% 13% 21% 22%

D&A (0.2) (0.2) (0.2) 0.0

EBIT 0.3 0.4 1.5 2.2

Margin 9% 9% 19% 22%

Interest 0.0 0.0 0.0 0.0

EBT 0.3 0.4 1.5 2.2

Margin 9% 9% 19% 22%

Income taxes (0.1) (0.1) (0.3) (0.5)

Net Income 0.3 0.3 1.2 1.7

Margin 7% 7% 15% 17% Source: EnVent Research

32

Selection criteria of industry players

As key determinants for the selection of comparable industry players, listed

companies in global markets, the following criteria have been adopted:

- Business mix with specialization in domain & hosting

- Multi-suite SaaS offering designed for SMEs

The selected peers have been then segmented in two groups:

- Operating Peers, listed companies in global markets, including Registrars,

together with technology companies which operate in the same business and

serve the same target market

- Registry Operators, operating in the same business, but at a different level,

mainly wholesale

Profile of selected listed companies

Operating Peers

Go Daddy. US technology company dedicated to small businesses and Registrar

with more than 14m customers and 61m domain names under management at the

end of 2015. Its offering includes value-added business applications for e-mail

marketing, domains and website builder, workspace.

2015 revenues: €1.5bn

Comparability: high

Endurance. US Registrar and provider of cloud-based solutions for small businesses.

Its products include domain name registrations and value-added solutions such as

SEO and SEM tools and website analytics. Portfolio of 5m customers and 12m

domains under management at the end of 2015.

Endurance is growing quickly through acquisitions, so it could be difficult to assess

organic growth trends. At the end of 2015, it acquired Constant Contact, a provider

of a digital marketing platform for e-mail campaign management.

2015 revenues: €683m

Comparability: high

Web.com. US Registrar and technology company providing value-added services

beyond the simple domain offering, such as web hosting, website design, social

media management and sales-lead generation. Web.com is a do-it-for-me type of

company focused more on helping its small business customers sell and market

their products, which helps the company drive ARPU growth.

9. INDUSTRY METRICS

33


Comparability: partial, with present business model, and high, with target business

model

Wix.com. Web development platform based in Israel. The cloud-based platform

empowers businesses, organizations, professionals and individuals to take their

businesses, brands and workflow online.

Wix.com is early in its lifecycle, since, although founded in 2006, the majority of its

revenue growth has occurred since 2011, so it is growing faster compared to its

peers (+45% CAGR 14-16E) and is still yet to generate profits (operating losses in

FY2014 and 2015).


Comparability: low

iomart. UK provider of cloud computing and managed hosting services. iomart has

a domain name Registrar in its group, called Easyspace.


Comparability: partial, with present business model, and high, with target business

model

Dada. Italian player in digital services for the online presence of small businesses,

professionals and high-end customers, in seven European countries. Dada, through

Register.it, is the second largest Registrar in Italy with over 1.8m domains under

management and 540,000 clients.

2014 revenues: €67m (2015E €62m)

Comparability: high

Registry Operators: low comparability

Verisign. US-based global provider of domain name registry services and Internet

security, enabling Internet navigation for many of the world’s most recognized

domain names and providing protection for websites and enterprises. Verisign

operates the authoritative directory of all .com, .net, .cc, .tv, and .name domain

names.

Verisign, the main Registry Operator which sells the .com domain extension, is

much larger in size both in terms of revenues and market capitalization, compared

to other peers.

2015 revenues: €975bn

Comparability: low

NeuStar. US-based provider of real-time cloud-based information services, enabling

marketing and IT security professionals to promote and protect their businesses.

Neustar operates the authoritative registries of Internet domain names for the .biz,

.us, .co, .nyc, and .travel top-level domains and provides services to help customers

optimize their web performance.

34


Comparability: low

Rightside. US-based provider of domain name services that enable businesses and

consumers to find, establish, and maintain their digital address. Rightside combines

the Registrar business, with more than 16m domain names under management at

the end of 2014, with the newly established Registry Operator business. Rightside

has participated in the expansion of gTLDs by the ICANN, launched in October 2013

and since the launch of the new gTLDs, it has built a portfolio of 36 gTLDs, including

.ninja, .rocks and .social.

Rightside, despite growing in revenues and domain name registration subscriptions

(+15% CAGR 14-16E), has a history of operating losses. It is currently reshaping its

business model Registrar to Registry Operator, even though to date the majority of

revenues are generated through domain name registration subscriptions and

related value-added services.


Comparability: low

Key data comparison

The following charts show a sample of key data and financial metrics of the selected

industry players.

Data relative to low profitability or loss-making companies have been disregarded,

considered non-meaningful, thus avoiding unreliable multiples, and average

multiples have been calculated smoothing extremes (low and high). Disregarded

data is dot-bordered and highlighted in grey.

Operating Peers (2015) GoDaddy Endurance Web.com Wix.com iomart Dada Avg.

EV/Revenues 3.7x 3.5x 2.6x 3.9x 4.7x 1.0x 3.7x

EV/EBITDA 28.1x 14.1x 12.6x neg. 11.3x 6.1x 16.5x

EV/EBIT n.m. 44.5x 22.2x neg. 24.2x 19.2x 30.3x

P/E neg. neg. 11.1x neg. 32.1x 23.9x 21.6x

Market Cap (€m) 4,603.0 1,378.7 915.5 831.5 394.5 35.9

Net (Debt)/Cash + Min. (€m) -901.0 -988.4 -371.9 101.3 -31.4 -27.9

Enterprise Value (€m) 5,504.0 2,367.1 1,287.4 730.2 425.9 63.8

Revenues (€m) 1,479.9 682.6 500.4 187.4 91.0 61.9

EBITDA (€m) 195.9 168.3 101.9 -40.2 37.7 10.5

EBITDA Margin 13% 25% 20% neg. 41% 17% 25%

EBIT Margin 3% 8% 12% neg. 19% 5% 11%

Net Income Margin neg. neg. 17% neg. 14% 2% 15% Source: EnVent Research on S&P Capital IQ data, 15 March 2016 – Market capitalizations at end of FY2015. Key

financials as per analysts’ estimates for Dada.

35

Registry Operators (2015) VeriSign NeuStar Rightside Avg.

EV/Revenues 9.2x 2.2x 0.7x 5.7x

EV/EBITDA 14.5x 5.7x neg. 10.1x

EV/EBIT 16.0x 7.6x neg. 11.8x

P/E 26.0x 7.3x neg. 16.6x

Market Cap (€m) 8,969.3 1,182.7 145.1

Net (Debt)/Cash + Min. (€m) 42.1 -926.6 16.9

Enterprise Value (€m) 8,927.1 2,109.2 128.2

Revenues (€m) 975.4 966.7 195.6

EBITDA (€m) 614.5 368.6 -1.5

EBITDA Margin 13% 25% 20% 19%

EBIT Margin 57% 29% neg. 43%

Net Income Margin 35% 17% neg. 26% Source: EnVent Research on S&P Capital IQ data, 15 March 2016 – Market capitalizations at end of FY2015.

All selected peers are much larger in terms of size, compared to DHH.

Registry Operators are more established businesses and show higher operating

margins.

GoDaddy, Endurance and Dada present a comparable business model.

Web.com and iomart have a more articulated product suite and can be considered

a benchmark for the target business model of DHH following the growth and

evolution program.

DHH Value drivers and use of market data

DHH is well-positioned to capture growth in the domain & hosting and cloud-based

software solutions businesses designed for SMEs. Growth will be sustained through

a program of acquisitions, in addition to the introduction and development of a

user-friendly suite of products shared within the entire group.

Domain & hosting industry multiples

Source: EnVent Research on S&P Capital IQ data, 15 March 2016

Operating PeersEV/REVENUES EV/EBITDA EV/EBIT P/E

2014 2015E 2016E 2017E 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E

GoDaddy n.a. 3.7x 3.2x 2.9x n.a. 28.1x 14.7x 12.3x n.a. n.m. n.m. 63.7x n.a. neg 18.4x 15.0x

Endurance 5.6x 3.5x 2.1x 1.9x 23.4x 14.1x 6.2x 5.3x n.m. 44.5x 20.7x 12.9x neg neg 8.2x 7.0x

Web.com 2.7x 2.6x 1.7x 1.5x 13.5x 12.6x 7.4x 5.9x 36.1x 22.2x 8.3x 6.6x neg 11.1x 6.5x 5.1x

Wix.com 5.0x 3.9x 2.4x 1.9x neg neg 22.6x 11.7x neg neg neg n.m. neg neg neg neg

iomart 3.8x 4.7x 3.9x 3.5x 9.8x 11.3x 9.3x 8.1x 18.6x 24.2x 15.0x 12.2x 25.0x 32.1x 18.0x 14.5x

Dada 1.1x 1.0x 1.1x 1.0x 12.2x 6.1x 5.9x 5.5x 39.5x 19.2x 16.1x 14.4x neg 23.9x 29.9x 24.0x

Mean 4.3x 3.7x 2.7x 2.3x 15.6x 16.5x 12.0x 8.7x 27.3x 30.3x 14.7x 23.9x n.m. 21.6x 12.8x 10.4x

Mean w/out extremes 4.4x 3.7x 2.6x 2.2x 13.5x 13.3x 10.5x 8.6x n.a. n.a. 15.0x 12.5x n.m. n.a. 13.1x 10.7x

Median 4.4x 3.7x 2.4x 1.9x 13.5x 13.3x 9.3x 8.1x 27.3x 24.2x 15.0x 12.5x n.m. 21.6x 13.1x 10.7x

Registry OperatorsEV/REVENUES EV/EBITDA EV/EBIT P/E

2014 2015E 2016E 2017E 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E 2014 2015E 2016E 2017E

VeriSign 6.8x 9.2x 8.5x 8.3x 10.9x 14.5x 12.4x 12.2x 12.1x 16.0x 13.5x 13.2x 19.4x 26.0x 21.7x 20.9x

NeuStar 2.0x 2.2x 2.0x 2.0x 5.5x 5.7x 4.3x 4.2x 7.3x 7.6x 7.1x 9.1x 9.3x 7.3x 4.9x 5.8x

Rightside 0.5x 0.7x 0.6x 0.6x neg neg 14.4x 12.5x neg neg neg neg neg neg neg neg

Mean 4.4x 5.7x 5.3x 5.1x 8.2x 10.1x 8.4x 8.2x 9.7x 11.8x 10.3x 11.2x 14.4x 16.6x 13.3x 13.3x

Comparables

Comparables

36

Multiples strongly rewarding

the industry

Valuation by regression

Regression analyses of listed industry companies’ market values are in principle

deemed feasible for valuation considerations on DHH.

Looking at the above detailed industry metrics, data show that current profitability,

used in earnings-based multiples such as EV/EBIT or P/E, often offers an inadequate

and insufficient approach in estimating market values.

The valuation of DHH at this stage of development would be better driven by

mainly looking at the EV/Revenues multiple, which is the most suitable for early-

stage growth stocks.

Regression analysis on EV/Revenues

y = 8.9309x + 1.3235R² = 0.5316

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

8.0x

9.0x

10.0x

0% 10% 20% 30% 40% 50% 60% 70%

EV /

Rev

en

ue

s 2

01

5

EBITDA Margin 2015

Peer group - regression

DHH VALUE AREAEV/Revenues multiple ranging from 2.6x to 3.1x, based on the EBITDA margin at the end of projections

DHH


The graph shows that valuation of comparable industry players is driven by market

shares and articulation of products, more than profitability. Basic hosting services

businesses tend to be positioned below the line, while companies equipped with

product suites are often above the regression line.

According to metrics included in this graph, DHH potential value would fall within

the shaded area.

37

Regression analysis on EV/EBITDA

y = -10.51x + 16.473R² = 0.061

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

0% 10% 20% 30% 40% 50% 60% 70%

EV /

EB

ITD

A 2

01

5

EBITDA Margin 2015

Peer group - regression


The above graph shows that EV/EBITDA multiples present low, if any, correlation

with EBITDA margins, arguably significantly influenced by the very specific stages in

companies’ lifecycle or their acquisition activity. This is confirmed by the inelasticity

of specific industry valuation multiples, that were not influenced when reported

profits underperformed consensus expectations (Go Daddy and Endurance stock

analysis, February 2016).

Given that DHH presents an expected operating profitability consistent with the

industry average, EBITDA multiples can be introduced in the potential valuation

models mitigating results so as to take into account the Company’s size and the

limited breadth and depth of the target stock market.

Cloud computing industry multiples

An alternative source of market multiples that could be observed to assess the

potential value creation opportunity in DHH is the public cloud computing firms

sector.

Bessemer Venture Partners, a US venture capital firm specialized in technology

start-ups, publishes an analysis of over 40 US cloud computing firms with a market

cap ranging $100m-45,000m that shows the following indicators:

Multiples Operating Metrics

EV/Revenue P/FCF EV/EBITDA Revenue % Margin

MarketCap EV 2015 2016 2016 2016 2016 15 - 16 Gross

Median $1,192 $1,046 4.7x 3.8x 20.9x 21.3x $286 29% 72%

Mean $3,263 $3,090 5.1x 3.9x 37.2x 29.9x $508 27% 71%

Low $125 $86 0.7x 0.7x 15.0x 12.2x $72 6% 46%

High $44,974 $45,825 11.5x 8.8x 72.6x 64.3x $6,649 47% 89%

Source: Bessemer Venture Partners, BVP Cloud Computing Index, 22 February 2016

38

Summary of market values

“As is” scenario

Based on the above analyses, the use of EV/Revenues and EV/EBITDA multiples

would lead to the following value set for DHH as is.


9.29.9

12.9

14.5

Operating Peersavg.

Regressionmultiple onRevenues

RegistryOperators avg.

Cloud ComputingPeers avg.


Mean 1211

13


Data used:

- 2015 aggregated and 2016E sales

- 2015-2016E mean EV/Revenues and EV/EBITDA multiples from Operating

Peers

- EV/Revenues multiples resulting from the regression analysis equal to 2.6x in

2015 and 2016E

- 2015-2016E mean EV/Revenues and EV/EBITDA multiples of the Registry

Operators

- 2015-2016E median EV/Revenues and 2016 EV/EBITDA multiples of the cloud

computing firms

“Value creation” through acquisitions

As mentioned, in a high-tech fast growing industry, know-how and growth may be

significant value drivers as evidenced by the above regression analysis. Hence, the

revenue multiple is the preferred tool used to measure the potential value creation

in DHH.

The following graph indicates results consequent to the application solely of

EV/Revenues multiples:

- to current revenues as a base value

39

Please refer to important disclosures

at the end of this report.

- to future revenues in the acquisition scenario (€10m), as an expected upside

with a flat 20% discount to account for timing and additional risk.

While the base area can be considered an equity value, the additional value portion

(green area), being the period-end revenues based on the completion of the

acquisition program, is to be considered an Enterprise Value from which the cost of

any acquisition must be deducted. The actual upside will be the difference between

the value created by the acquisitions and their cost (red area, dimensioned on a

dummy €5m value).

Enterprise Value range on projected target revenues (€m)

11.9 10.0

16.120.8

Operating Peersavg.

Regressionmultiple onRevenues

Cloud ComputingPeers avg.

RegistryOperators avg.


20.7

42.1

30.4

24.9


Data used:

- 2018E target revenues as per acquisition scenario

- 2016E mean EV/Revenues multiple of the Operating Peers

- EV/Revenues multiple resulting from the regression analysis equal to 3.1x in

2018E

- 2016E median EV/Revenues multiple of the cloud computing firms

- 2016E mean EV/Revenues multiple of the Registry Operators

These values, subject to be discounted due to DHH’s size and the application of

forward revenues, are suitable to suggest the size of the expected upside.

40

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41

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Equity Value range ( m) - DHH International · set to be an ideal operator to capture the untapped...

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