cloud valuation - m&a - hostingcon 2010

Tom Millitzer, President - NCC

Tom Millitzer – President NCC International

CloudTelecom

Valuations

MatriXIn A New


Tom Millitzer – President NCC International Internet M&A Firm Founded 1994

Over 300 Completed Assignments

Sold our first Hosting Firm in 1997

Represent Selers


Tom Millitzer – President NCC InternationalI want to do business

with you....

[email protected]

mailto:[email protected]


What we will do today…

Valuation Theory in the 4th and 6th Dimension

Deals

Cloud Valuation and the New Matrix

Where does this Cloud between Internet and Telecom…

Deal Strategy Timing


The provider…

End user. . .


Rule of 4 – Valuation Theory

Multiple of EBITDA

Multiple of Revenues


…. Operating in the 4th Dimension

Classic “Shared Hosting” 1X Annual Revenues

.25 X 4 = 1

The base acquisition should pay back in 4 years.

25% EBITDA

Operating in SYNERGY Dimension

• SYNERGY………


… WE Reduce Costs

… WE Build On Our Efficiencies

… WE Leverage Assets


…. WE Operate in the 6th Dimension

6 x EBITDA = 4 x Post Synergy

• Synergy should move most deals to a 40% Accretive EBITDA


…. Operating in the 6th Dimension

Text

4 X 6 X


…base 4 to 6 X EBITDA Valuation Range4-6 EBITDA is often the “comfort” or “negotiating start range ”The greater the synergy the greater outcome and possibly the new decent “Inverted Synergy” outcome.


…base 4 to 6 X EBITDA Valuation Range is the floor for Cloud services


…ENOUGH …

We want to look at some real deals…


… March 2010 TDS acquires


• – (NYSE:TDS, TDS.S)

• 8th Largest Telephone Company • 750 thousand customers• $5 billion in annual revenues • $670 million cash on hand.

• Visi – Managed Hosting – Cloud entrant

• $10-12 million Annual Revenues –


…TDS / Visi --- the deal

• $17.5 Million Cash• 1.45 to 1.75 X annual revenues• 5.8 X EBITDA (assuming $12m rev X 25%)

• $17.5 Million Cash• 1.45 to 1.75 X annual revenues• 5.8 X EBITDA (assuming $12m rev X 25%)

Signal Hill - Represented Visi


…TDS / Visi deal - revealed

• - Visi has been transitioning - ISP to Hosting Company.• - Visi has been transitioning - ISP to Hosting Company.

- Revenues 50% broadband - 50% Hosting Related.

Hosting portion possibly: 2X Annual Revenues 8X EBITDA

May have been higher.

- Visi launched Cloud in December 2009


…TDS / Visi –….• - They speak the same language.• - They speak the same language.

- TDS acquired product line to sell into 200,000 (est.) SMB’s

- A product to increase customer stickiness and loyalty.

- TDS understands DSL and Broadband - Will achieve synergies.

- TDS obtained a product line outside of PUC rate regulation.


…Visi deal – great timing….

- Total tax savings up to $1,940,000 – 11.1% of the deal.

- $20 million to obtain the same result as of January 1, 2011


…8x8, Inc. Acquires Central Host – May 2010


• (Nasdaq:EGHT)

• VOIP Company• 20,000 SMBs (avg rev - $250/mo.)• $63 million annual rev (ttm)• $17 million cash on hand.

Central Host – Managed Hosting $1 million Annual Revenues – Avg account $2,300/mo.


…8x8 / Central Host --- the deal

• $1.6 Million• 1.6 X annual revenues• 6.4 X EBITDA

• $1.6 Million• 1.6 X annual revenues• 6.4 X EBITDA

NCC International - Represented Central Host


……what 8x8 acquired…

- 8x8 acquired product line to sell into 20,000 SMB’s

- A product to increase customer stickiness and loyalty.

- Leverage a great sales organization.

- Increase margins and increase Avg. Rev.


…Savvis Acquires Fusepoint – May/June 2010


• (Nasdaq:SVVS)

• IT – Cloud – Managed – Colo - Bandwidth• 4,200 IT customers – Likes vertical markets• $870 million in annual revenues • $146 million cash on hand. (3-31-10)

• 25% EBITDA

Fusepoint – - Managed Hosting – Cloud entrant - Toronto- $47.5 million Annual Revenues – - 50% managed servers, 30% Colo, 20% App Services- 25% EBITDA


…Savvis / Fusepoint --- the deal

Signal Hill - Represented Fusepoint

• $124.5 M Cash transaction• $47.5 M Annual

Revenues• 2.62 X Annual Revenues• 10.4 X EBITDA


……what Savvis acquired…

- Savvis has a large vertical Financial market sector, lucrative…

- Fusepoint – right place – great reputation – right time.

- Wanted immediate Canada expansion…Toronto financial hub.

- Savvis not sure what to do w/ SaaS

- Savvis stated: “near” immediate $8 million reduction in costs – REALLY 6-7 EBITDA? (vs 10.4)


• (NYSE:CBB

• $525 million cash transaction• Data Center deal – • 12.5X EBITDA • 9X rev • 163,000 sq ft of datacenter @ $3220 per sq ft.

• (NYSE:CBB

• $525 million cash transaction• Data Center deal – • 12.5X EBITDA • 9X rev • 163,000 sq ft of datacenter @ $3220 per sq ft.

Jan 2008--Cincinnati Bell acquired GramTel USA, a disaster recovery,, data backup and co-location services. in a transaction valued at approximately $20 million. Est – 3.5X annual revenues.

Acquires CyrusOne


And just to note…the market shift…


....the Cloud today –

The Cloud will create what I term…..


…Inverted Synergy Paradigm


…. Inverted Synergy Paradigm WHERE...

• Synergy improves my Base EBITDA

• The acquisition dramatically improves my base business.

• My business experiences a true paradigm shift.


… U Reduce OUR Costs

… WE Build On YOUR Efficiencies

… WE Reconfigure OUR Assets

…WHERE


Where is that 4 year Payback now?


- Growth like this equals =

Great Valuations......


Visit go to the press release section ofwww.com-broker.com

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