May 19-20 l Washington, DC l Omni Shoreham Valuation in the Hosting Business Paul Stapleton Managing...

May 19-20 l Washington, DC l Omni Shoreham

Valuation in the Hosting Business

Paul Stapleton

Managing Director, DH Capital, LLC

Parallels Summit 20082

• Who is DH Capital?

• What is Hosting?

• Mass Market Hosting (MMH)

• Enterprise Hosting (MSP)

• Valuation Methods

• Public Companies

• Mergers and Acquisitions

• Replacement Costs

• Discounted Cash Flow Analysis

• Earnings Power

• Churn

Agenda


• Improving Valuations

• Tracking ROI

• Channel Management

• New Products (I.e. growth)

• Use Acronym du jour

Agenda


• Sole lead advisor in 64 transactions totaling over $1.9 billion

• Closed 40 M&A transactions totaling approximately $1.4 billion

• Arranged more than $474 million in 25 private placements

• Strong relationships with strategic operators as well as private equity funds and financial institutions that support them

• We have made lots of mistakes (e.g. Misuse of Discounted Cash Flows)

DH Capital: Proven Expertise


• For this discussion - Divided into Mass Market Hosting and Enterprise Hosting

• MMH

• Products with low price points

• Highly Automated

• Large Call Centers

• Enterprise Hosting

• Products with high price points

• Capital Intensive

• Direct Sales Force

• Other Hosters - e.g. eCommerce, SAAS, Social Nets

What is Hosting?


Hosting is one of the best business models in the Telecom / Data-com ecosystem:

• A recurring revenue business model• A “valuable network”, i.e. a network that

stores/handles “valuable” informationSuch as bank accounts, family photos, and

web hosts• The result is low churn and effective pricing driven

by perceived value not costs• ROI drivers in hosting are well aligned:

Subscriber acquisition costs, margin, churn• Extraordinary operating leverage after covering

fixed costs

DH Capital Hosting Message


PUBLIC COMPANY ANALYSIS


MSP Public Comps Summary

All amounts in millions unless stated

Company Digital Realty Dupont Fabros Equinix Internap Navisite Q9 Networks Savvis Switch & Data Telecity Group Terremark

Ticker DLR DFT EQIX INAP NAVI Q.TO SVVS SDXC TCY.L TMRK

Share price (as of 5/7/08) 40.92$ 18.64$ 88.31$ 4 .64$ 3 .70$ 10.59$ 15.86$ 16.29$ 2 .38£ 6 .02$

Shares Outstanding 65.4 35.5 36.6 49.1 35.3 20.9 53.0 34.3 167.4 59.1

Stock Options 1.2 0 .1 3 .1 3 .2 5 .5 1 .4 6 .3 0 .0 3 .1 3 .4

Fully Diluted Shares 66.6 35.5 39.8 52.3 40.8 22.3 59.4 34.3 170.5 62.5

Market Cap 2,724.9$ 662.2$ 3 ,512.7$ 242.7$ 151.0$ 236.5$ 941.8$ 559.0$ 405.79£ 376.0$

Less: Working Capital (129.2)$ (18.0)$ 214.4$ 69.8$ (8 .4)$ 26.7$ 93.4$ (21.4)$ 30.1£ 134.6$

Less: Options Value 32.3$ 1 .5$ 184.9$ 42.5$ 8 .3$ 18.8$ 170.4$ 0 .0$ 5 .2£ 32.7$

Plus: Long-term Debt 1,817.3$ 352.9$ 1 ,295.6$ 39.5$ 165.5$ 5 .2$ 587.9$ 185.6$ 32.5£ 347.8$

Enterprise Value 4,639.0$ 1 ,031.6$ 4 ,409.0$ 170.0$ 316.5$ 196.2$ 1 ,265.9$ 766.0$ 403.1£ 556.5$


MSP Public Comps Summary (cont’d)




OPERATING AND B ALANCE SHEET DATA

Cash and cash equivalents 31.4$ 11.5$ 325.5$ 62.3$ 4 .9$ 33.3$ 164.6$ 109.5$ -£ 133.7$

Annualized Revenues 458.2$ 103.5$ 632.8$ 248.2$ 155.6$ 63.5$ 813.2$ 159.1$ 97.9£ 199.9$

Annualized Adjusted EB ITDA 256.3$ 412.1$ (1) 249.2$ 87.1$ 17.1$ 17.1$ 17.1$ 17.1$ 17.1£ 17.1$

Margin 55.9% 398.2% 39.4% 35.1% 11.0% 26.9% 2.1% 10.8% 17.5% 8.6%

Annualized Net Income 44.43$ (397.22)$ 21.68$ 2 .96$ (8 .56)$ 1 .09$ (16.80)$ 1 .36$ 7 .8-£ (13.96)$

Fully Diluted EPS 0.33$ (2 .80)$ 0 .14$ 0 .01$ (0 .05)$ 0 .05$ (0 .07)$ 0 .01$ 0 .0-£ (0 .06)$

Published EPS 0.34$ (2 .80)$ 0 .15$ 0 .01$ (0 .08)$ 0 .05$ (0 .08)$ 0 .01$ 0 .0-£ (0 .06)$

(1) Includes one-time addback of $176M (Acquisition of service agreements)






CUSTOMER DATA

Customers/Subscribers NA NA 1,994 3 ,749 1 ,400 NA 4,400 907 NA 948

Revenue per customer (mthly) NA NA 26,446$ 5 ,517$ 9 ,263$ NA 15,402$ 14,619$ NA 17,568$

Churn NA NA NA NA 0.8% NA NA 0.9% NA NA



Average

EV-to-Revenue 4.6xEV-to-EBITDA 24.5xEV-to-Customers 700,312$ Fully Diluted P/E 250.3xPublished P/E 260.2xCAGR 05-07 28%




VALUATION METRICS

EV-to-Revenue 10.1x 10.0x 7.0x 0.7x 2.0x 3.1x 1.6x 4.8x 4.1x 2.8x

EV-to-EB ITDA 18.1x 2.5x 17.7x 2.0x 18.5x 11.5x 74.0x 44.8x 23.5x 32.5x

EV-to-Customers NA NA 2,211,151$ 45,335$ 226,105$ NA 287,697$ 844,518$ NA 587,065$

Fully Diluted P/E 122.7x -6.7x 648.0x 328.4x -70.6x 216.2x -224.2x 1648.9x -51.9x -107.7x

Published P/E 120.4x -6.7x 588.7x 464.0x -46.3x 202.4x -198.3x 1629.0x -51.0x -100.3x

CAGR 05-07 38% 27% (2) 23% 23% 7% 48% 9% 14% 48% 45%


MMH Public Comps Summary


Company Hostopia IWEB Peer 1 Rackspace Website Pros

Ticker H.TO IWB.V PIX.V RAX WSPI

Share price (as of 5/13/08) 4.60$ 1.05$ 1.39$ 11.00$ 8.74$

Shares Outstanding 11.6 27.0 118.5 101.3 (1) 27.6 Stock Options 0.3 1.2 12.3 17.1 6.9 Fully Diluted Shares 11.9 28.2 130.8 118.4 34.5

Market Cap 55.0$ 29.6$ 181.8$ 1,301.9$ 301.4$

Less: Working Capital 28.1$ (2.7)$ (2.7)$ (50.6)$ 22.0$ Less: Options Value 1.8$ 1.0$ 6.2$ 52.7$ 36.0$ Plus: Long-term Debt 0.2$ 9.5$ 16.0$ 87.8$ 6.4$

Enterprise Value 25.2$ 40.8$ 194.3$ 1,387.6$ 249.7$

(1) Weighted average number of shares (S-1, pg. 6)


MMH Public Comps Summary (cont’d)




OPERATING AND BALANCE SHEET DATA

Cash and cash equivalents 26.2$ 2.3$ 7.0$ 24.9$ 34.1$ Annualized Revenues 29.7$ 14.4$ 88.9$ 362.0$ (1) 123.4$

22.5$ 9.8$ 74.4$ 362.0$ 82.3$ 18.0$ 5.8$ 60.7$ 224.0$ 52.0$ 13.4$ 2.9$ 19.4$ 138.8$ 37.8$

Annualized Adjusted EBITDA 8.3$ 3.3$ 27.2$ 87.1$ (1) 17.1$ Margin 28.1% 23.3% 30.6% 24.1% 13.9%

Annualized Net Income 2.89$ 0.08$ 7.53$ 10.22$ (1) 2.20$ Fully Diluted EPS 0.24$ 0.00$ 0.06$ 0.15$ 0.06$ Published EPS 0.20$ 0.00$ 0.04$ 0.18$ 0.08$

(1) 2007 Actuals






CUSTOMER DATA

Customers/Subscribers 309,000 12,000 9,000 29,193 270,000 Revenue per customer (mthly) 8$ 100$ 823$ 1,033$ 38$ Churn NA 3.0% NA 1.6% 4.1%Servers NA 3,800 NA 36,000 NAServer ARPU (mthly) NA 315$ NA 838$ NA






VALUATION METRICS Average

EV-to-Revenue 0.8x 2.8x 2.2x 3.8x 2.0x 2.3xEV-to-EBITDA 3.0x 12.2x 7.1x 15.9x 14.6x 10.6xEV-to-Customers 81$ 3,398$ 21,587$ 47,530$ 925$ 14,704$ Fully Diluted P/E 19.0x 382.5x 24.1x 73.0x 137.0x 127.1xPublished P/E 23.0x 366.3x 34.8x 61.1x 109.3x 118.9xCAGR 05-07 30% 83% 96% 62% 48% 63%


MERGERS & ACQUISITIONS


MSP Deal Flow

0

5

10

15

20

25

2005 2006 2007 2008

North American MSP Deals 2005-2008

> $100M

Btwn $50M-$100M

Btwn $25M-$50M

Btwn $10M-$25M

< $10M


MSP Deal Multiples 2005-2008

Number

of deals

Average Revenue

Multiple

Average EBITDA

Multiple

North America

< $10M 25 1.43x 5.00x (1)$10 - 25M 9 1.32x 11.75x (2)

$25-$50M 2 2.15x 9.33x (1)

$50-$100M 6 3.38x 12.41x (3)> $100M 5 5.36x 20.64x (4)

Total 47

Non-North America

< $10M 0 NA NA

$10 - 25M 2 1.20x NA (1)

$25-$50M 1 4.80x 48.00x (1)

$50-$100M 1 3.02x 11.48x (1)> $100M 3 3.94x NA (5)

Total 7

(1) Multiple is based on one deal

(2) Revenue multiple is based on 9 deals; EBITDA multiple is based on 4 deals(3) Revenue multiple is based on 6 deals; EBITDA multiple is based on 5 deals

(4) Revenue multiple is based on 4 deals; EBITDA multiple is based on 3 deals

(5) Revenue multiple is based on 2 deals


MMH Deal Flow

0

5

10

15

20

25

30

35

2005 2006 2007 2008

North American MMH Deals 2005-2008

>$100M

Btwn $25M-$100M

Btwn $5M-$25M

<$5M


MMH Deal Multiples 2005-2008

Number of deals

Average Revenue Multiple

Average EBITDA Multiple

North America

< $5M 46 4.92x NA (1)

$5 - 25M 16 3.45x 17.84x (2)

$25-100M 2 1.99x 12.50x (3)

> $100M 2 7.00x -23.81x (3)

Total 66

Non-North America

< $5M 8 6.04x NA (4)

$5 - 25M 3 1.78x NA (4)

$25-100M 2 2.17x 4.98x (3)

> $100M 1 NA NA

Total 14

(1) Revenue multiples based on 2 deals

(2) Revenue multiples based on 6 deals; EBITDA multiple based on 1 deal

(3) Revenue multiples based on 2 deals; EBITDA multiple based on 1 deal

(4) Revenue multiple based on 1 deal


• Balance Sheet is a Good Place to Start

• FMV of Facilities

• High for Enterprise Hosting

• Low for MMH

• Start-Up Loses

• High for Enterprise Hosting

• Low for MMH

• Typically no Intellectual Property in Hosting

• Not a Good Tool

• Will we use it again? E.g. Collocation Overbuild?

Replacement Costs


• View modified in the early 2000s

• Problems with terminal value

• Earnings Power of the Business

• Bruce Greenwald - Value Investing

• Churn, Margin, Cost of Acquisition

• Cost of Acquisition = PV

• Margin = PMT

• Churn = 1 / n

• Solve for ROI

• What about FV?

• What about g?

Discounted Cash Flow Value Analysis


Churn, Margin, Cost of Acquisition

• Cost of Acquisition = PV

• Margin = PMT

• Churn = 1 / n

• Solve for ROI

• What about FV?

• What about g?

For Example

Assumptions

• PV = $100

• PMT = $5 / mos.

• Churn = 3.0%

• 33 months

• ROI = 39% / yr.

• 3.3% / mos.


• Track Churn and Acquisition Costs

• Understand the Customer Channel

• New Products up and down stack

• Improve post-deal integration (virtualization helps?)

• Know your Sustainable Earnings Power (ROI)

• Wait

• Read RAX S-1

• Change your Name

• Buy EMC / Short VMW

Improving Hosting Values


Questions

Paul StapletonManaging Director, DH Capital

212-774-3729


2008 N. American MMH Deals Date Seller Buyer

Transaction

Value (millions)

TERMS Comments

6-May-08Shared Hosting customer assets of Tucows (AMEX: TCX, TSE:

TC)Hostopia (TSW: H) $1.60

Cash; 20% on agreement signing and 80% at close

Tucows provides Internet services to web hosters and ISPs.

29-Apr-08 Verisign's Digital Brand Management Services division

Melbourne IT (ASX: MLB) $50.00 Digital Brand Management Services include Domain Name Management Services and Brand Monitoring Services.

28-Apr-08 Luxmovera LLC dba UplinkEarth Hostopia (TSX: H) NA Cash transactionUplinkEarth is a New Jersey-based hosting provider and has 12.5K subscribers.

10-Apr-08 Canada Web Hosting Hostopia (TSX: H) NAAcquisition of 1,200 shared hosting customers

Canada Web Hosting is a Vancouver- and Toronto-based hosting provider focused on managed hosting in the SMB and mid-enterprise space.

23-Apr-08 Websitesource.com & its subsidiary, Speedfox.com

Alentus (subsidiary of Enacten Corporation)

NA Websitesource and Speedfox, based in Austin, TX, are web hosters and web design providers.

1-Mar-08 7th Street Media PowerServe.net NA 7th Street, a subsidary of Morris Communications, is a web hoster and design provider.

29-Feb-08 Homepage Universe Pro Net Hosting NA Homepage Universe provides web hosting to SMBs.

17-Jan-08 Conquest eMedia Barak Hosting NA Conquest is a website software applications provider.

11-Jan-08 HostMyProxies.com Fat Jack Hosting NA HostMyProxies was founded in 1997 and provides proxy hosting services.

10-Jan-08Vision Online Network Windows

BusinessReal Value Hosting NA VON is a Canadian-based web hosting company.

4-Jan-08 Alentus Corporation EnActen Corporation NA Alentus, founded in 1997, is a Canadian based dedicated and shared hosting provider.

2-Jan-08 BigHostCompany HostedToday NA BigHost focuses on Unix-based shared hosting market.


2007 N. American MMH Deals Date Seller Buyer

Transaction

Value (millions)

TERMS Comments

20-Dec-07 Helm control panel Parallels (fka SWSoft) NA The Helm control panel is developed by Webhost Automation

11-Dec-07 Kosmix DAG Ventures, Accel, Lightspeed $ 10.00 Series B FundingKosmix’s mission is to create the unofficial home page for every topic on the Web, giving consumers a starting point from which to explore and discover new content.

2-Nov-07 Voxitas (fka Netlogic)Dolphin Equity (lead), Advantage Capital and Two Rivers Ventures

$ 2.53 Voxitas is an Internet phone and data service provider.

24-Sep-07 CompleteHostingSolutions.com Globat.com NA Acquisition of virtually all assets CompleteHostingSolutions.com is a California-based web hosting provider

11-Sep-07 ViscoLink ProService NA ViscoLink is a Canadian Web Hosting provider.

15-Aug-07 Newista Globat.com NA Asset acquisition Newista is a California-based web hosting company.

13-Aug-07 Alabanza Navisite (Nasdaq: NAVI) $ 6.85 Asset acquistion Alabanza provides a suite of dedicated and shared web hosting services.

10-Aug-07 Jupiter Hosting Navisite (Nasdaq: NAVI) $ 8.70 Acquisition of all capital stockJupiter Hosting offers dedicated and complex managed hosting and infrastructure services.

31-Jul-07 Innerwise, Inc. Tucows (TSX: TC, AMEX: TCX) $11.40 $10.35M in cash and $1.05M upon completion of performance targets

ItsYourDomain, owned by Innerwise, is a US-based registrar with more than 700,000 domain names under management.

23-Jul-07 Interactive Network ServicesNextPhase Wireless (OTCBB:

NXPW.OB) $ 0.35 All cash transaction Interactive is a Blackwood, NJ ISP.

26-Jun-07 Web.com Website Pros (Nasdaq: WSPI) $ 129.00

Web.com shareholders may elect to receive for every Web.com share either 0.6875 shares of WSPI stock or $6.5233 in cash

Web.com provides web hosting and design.

5-Jun-07TemplateRover.com (a division

of Geeksforless, Inc.)Hostopia.com Inc. (TSX: H) CAD $0.247 Acquisition of all operating assets TemplateRover provides website and flash templates.


2007 N. American MMH Deals (cont’d) Date Seller Buyer

Transaction

Value (millions)

TERMS Comments

4-May-07 iPower Endurance $ 90.00 iPower is a provider of web hosting and domain name registration.

6-Apr-07 DEHE JaguarPC NA DEHE is a VPS and server provider.

5-Apr-07 China Civilink (Cayman) SYNNEX (NYSE: SNX) NA Purchase of controlling interestCivilink operates in China as HiChina Web Solutions, a eCommerce company that provides domain name registration, web site hosting and design, and runs a popular portal site www.com.cn.

4-Apr-07 Affinity Internet Hostway Corporation NA Combined company will have 600,000 web hosting customers.

26-Mar-07BroadSpoke (KLNT Enterprises

LLC)WisperTel NA

WisperTel, founded in October 2001, provides broadband access and value-added services to under-served bedroom communities, initially in Southwest Denver.

19-Mar-07 Submitawebsite, Inc. Website Pros (Nasdaq: WSPI) $ 2.12 Acquisition of most assets and select liabilities Submitawebsite provides Search Engine Optimization (SEO).

12-Mar-07 Charger Technologies IGCHosting NA Charger Technologies will continue to offer VPS and dedicated hosting as part of its small business solutions.

8-Mar-07Gotwebsitehosting.com and

B50Websitespot.comVividHosting NA

Both acquired companies provide domain registration, web hosting and design.

28-Feb-07 OW Holdings, Inc. Sitestar (OTCBB: SYTE) $ 0.90 Asset acquisition; $600K at closing and the balance due in 90 days OW Holdings Inc. is a Wyoming-based Internet Service Provider.

27-Feb-07 PBWiki Mohr Davidow Ventures $ 2.10 Series B Funding PBWiki provides free wikispace to businesses.

27-Feb-07 DNA Servers Inc. Canada Web Hosting NA DNA Servers is a Toronto based provider.

6-Feb-07 Network Solutions General Atlantic NA Najafi Companies purchased Network Solutions from VeriSign Inc. in November 2003.

26-Jan-07 Brick Network Access US NA Access US is a St. Louis, MO based internet service provider.

3-Jan-07 BigHostCompany.com HostedToday.com NA BigHostCompany focuses on the Unix shared hosting market.


• Major Bullet Point (Arial 24 Bold, Title Caps)– Minor Bullet Point (Arial 20 Non-Bold, Title Caps)

▪ Next Level (Arial 16 Non-Bold, Title Caps)– Next Level (Arial 14 Non-Bold, Title Caps)

MSP Stock Prices

$-

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

Enterprise Hosters TTM Weekly Stock Price (as of 8 May 08)

DL R

DFT

E QIX

INAP

NAVI

Q.TO

SVVS

SDXC

TCY.L *

TMRK

* denotes conversion to USD


How MSP Revenue Fared Since 2002

$-

$50.0

$100.0

$150.0

$200.0

$250.0

5-Year Quarterly Revenue Growth (as of 5/12/08)

DLR

EQIX

NAVI

SDXC

SVVS

TMRK

$ amounts in millions; Revenues for quarter in progress are based on management forecast


How MSP EBITDA Fared Since 2002

$(20.0)

$(10.0)

$-

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

$70.0

Q1 '02

Q3 Q1 '03

Q3 Q1 '04

Q3 Q1 '05

Q3 Q1 '06

Q3 Q1 '07

Q3 Q1 '08

5-Year Quarterly EBITDA Growth (as of 5/12/08)

DLR

EQIX

NAVI

SDXC

SVVS

TMRK


MMH Stock Prices over last 12 months

$-

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

Mass Market Hosters TTM Weekly Stock Prices (as of 8 May 08)

H.TO *

IWB.V *

PIX.V *

WSPI

* denotes conversion to USD


How MMH EBITDA Fared Since 2004

-$1.0

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

MMH EBITDA Growth

Hostopia

iWEB

Peer 1

Website Pros


How MMH Revenue Fared Since 2004

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

MMH Revenue Growth

Hostopia

iWEB

Peer 1

Website Pros


2008 N. American MSP Deals

Date Seller BuyerTransaction Value

(millions)TERMS Comments

11-Apr-08 Fastservers.net Layered Technologies, Inc. $10.00 Fastservers colocates in 3 data centers, located in Chicago, Cedar Falls, IA and Fremont, CA, and provides managed dedicated servers and colocation.

9-Apr-08 CBE Technologies Gores Equity LLC NACBE is a Providence, R.I.-based provider of managed IT services for state governments, municipalities, educational institutions and SMEs. CBE supports 2,500 customers.

8-Apr-08 Hosted Solutions ABRY Partners $140.00 Hosted Solutions is a managed services and data center provider.

18-Mar-08 Dataside ViaWest $100.00 Acquisition through debt financing (Goldman Sachs and Wells Fargo Foothill) and equity capital (Cowen Capital) Dataside, based in Dallas, TX, provides infrastructure space and managed services.

12-Mar-08 Layered Technologies, Inc. Enhanced Equity Fund (lead), Pangloss International $11.00 Funding provided Based in Plano, TX, Layered Tech is a provider of dedicated, partially managed server hosting solutions primarily for the SME market.

25-Feb-08 Lore Internet Systems, Inc. Clear Day Acquisition Corporation (affiliate of Opus8) NA Lore serves over 400 government and business clients, providing VoIP, managed services, colocation and virtualization.

8-Feb-08 AO Technologies Alentus NA Acquisition of data center and managed services clientsAO Technologies focuses on managed services, colocation and connectivity solutions and operates a tier one data center in downtown Columbus, OH.

14-Jan-08 Kortek Services Connecting Point NA Kortek is a Las Vegas-based IT solution provider.

7-Jan-08 GramTelUSA, Inc. Cincinnati Bell Inc. (NYSE: CBB) $20.00 Asset acquisitionGramTel, a subsidiary of Chicago-based Jordan Industries, Inc., provides disaster recovery services, data backup and colocation services. GramTel has 4 data centers with total floor capacity of 22,500 square feet.


2007 N. American MSP Deals Date Seller Buyer

Transaction Value (millions)

TERMS Comments

19-Dec-07 Data393 Managed Data Holdings, LLC $28.00 Data393 offers colocation, managed hosting, disaster recovery and IP Network services featuring Cisco, Microsoft, Red Hat, EMC and Compellent technologies from a SAS 70 Type II facility.

13-Dec-07 First National Technology Solutions Quality Technology Services NA FNTS had been managing QualityTech’s data centers in the Kansas City market, including facilities in Lenexa and Overland Park totaling about 75,000 square feet of space.

06-Dec-07 eGIX, Inc. Cinncinnati Bell (NYSE: CBB) $18.00 Asset acquisition eGIX serves business customers for integrated VoIP and data services, high-speed Internet access, local line services, business applications and messaging services in the Midwest.

19-Oct-07 Intelenet Communications, Inc. Managed Data Holdings, LLC $81.60 InteleNet provides colo, managed services and managed hosting solutions to enterprise customers in Orange County, CA and surrounding markets.

17-Oct-07 Blue Hill Data Services BPO Management (OTCBB: BPOM) $11.00

(i) cash to current selling stockholders of approx. $6.6m; (ii) 15-month promissory note for $1m; (iii) cash through Blue Hill of $1.4m to its former stockholder; (iv) 2.6M shares of restricted common stock valued at $1.8M. Promissory note bears interest at 9% rate per year.

Blue Hill Data Services, Inc. is a privately-held, full-service data center outsourcing services company headquartered in Pearl River, New York, with close proximity to New York City.

10-Oct-07 Stargate hosting division UK-2 Group NA Acquisition of shared and domain assetsStargate is now focusing on datacenter and dedicated hosting services. Former Stargate customers will now be customers of US2.net, which is the UK-2 Group's US domain and shared hosting brand.

04-Oct-07 DataSide Drawbridge $24.50 Secured debt financing; $12.5M will be used to retire debt, the balance will be used to pursue future data center developments

Dataside is a custom data center provider. Drawbridge is a subsidiary of Fortress Investment Group.

02-Oct-07 Vanguard Managed Solutions Court Square Capital Partners NA Vanguard Managed Solutions, owned by Platinum Equity, is a managed service provider.

21-Sep-07 WebUnited Host.net $6.00 WebUnited provides colocation services and dedicated Internet access in South Florida.

21-Aug-07 Helio Solutions Incentra Solutions $10.30

Price paid includes $5M in cash, 6M restricted shares and issuance of an unsecured, convertible 3-year note valued at $770K. Additional consideration consisting of cash and restricted shares can be distributed over three years depending on the completion of targeted financial goals


2007 N. American MSP Deals (cont’d)

Date Seller BuyerTransaction Value

(millions)TERMS Comments

16-Jul-07 VeriCenter Sungard $170.00 VeriCenter is a provider of colocation, managed hosting and infrastructure services.

11-Jul-07 CyrusOne ABRY Partners $99.00 Acquisition structured through financing which consisted of $5M revolver, $42M term loan, $27M second-lien term loan, and a $25M capex line

CyrusOne is a colocation and data center service provider based in Houston.

17-Jun-07 Intelenet Global Services Blackstone and Intelenet management team $81.60 Intelenet Global Services (Intelenet) delivers Business Process Outsourcing (BPO) services to Fortune 500 companies in the UK, USA and India.

29-May-07 Data Return Terremark Worldwide, Inc. (Nasdaq: TMRK) $85.00 Terremark will acquire Data Return for $85M consisting of $70M in cash and $15M in Terremark stock valued at the closing price on May 11, 2007.

Data Return is a privately-held provider of enterprise-class technology hosting solutions. Saratoga Partners acquired Data Return in June 2003 from Divine, Inc. in a bankruptcy auction for $28M.

17-May-07 Origin Data HostedSolutions NAHosted Solutions will provide Origin Data with a fully managed infrastructure in which Origin Data's core applications will reside.

17-May-07 Sprocket Networks AppServe NA Sprocket is an open source hosting provider.

28-Mar-07 ValiantHost.com Server Intellect NA ValiantHost is an applications hosting provider.

08-Mar-07 Aspen Communications Alpheus Communications NA Acquisition of all assets including data centerAlpheus acquired all the assets of Aspen Communications which includes several data center facilities in Dallas, Fort Worth and Bryan/College Station, along with Aspen's DFW-based licensed fixed wireless network.

27-Feb-07 Safecore, Inc.Expedient Communications, part of Continental Broadband

and wholly owned by Landmark Communications NAAcquisition of 25,000 sq ft data center and the colocation services business of Safecore Datacenter Services, LLC

Safecore will remain as a customer of the datacenter and continue to provide Digital Archiving services for regulatory compliance, litigation support and life cycle management.

12-Feb-07 bayMountain Peak 10, Inc. $6.50 bayMountain is a Richmond, Virginia based data center company that specializes in managed hosting and colocation services.

25-Jan-07 Charm Net DataPoint, Inc. a subsidiary of Continental Broadband and Landmark Communications

NA Charm Net is an Internet services and data center provider to the Baltimore and Washington metro areas.


• Return on Equity– Cost of acquisition

– Margin

– Churn

Churn

∏

Cost of acquisition

= RoE( )

1Churn

X

May 19-20 l Washington, DC l Omni Shoreham Valuation in the Hosting Business Paul Stapleton Managing...

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Transcript of May 19-20 l Washington, DC l Omni Shoreham Valuation in the Hosting Business Paul Stapleton Managing...