m&a in the hosting market remains strong

CAPITALMIND HOSTING PRESENTATION

April 2017

Jules van den Munckhof

Analyst

+31 (0)73 – 623 87 [email protected]

Paris office

T: +33 1 48 24 63 00

F: +33 1 48 24 63 02

62 rue La Boétie

75008 Paris

France

Ron Belt

Managing Partner

+31 (0)73 – 623 87 74

[email protected]

’s–Hertogenbosch office

T: +31 (0)73 – 623 87 74

F: +31 (0)73 – 623 87 75

Reitscheweg 49

5232 BX ’s–Hertogenbosch

The Netherlands

Strictly private and confidential CAPITALMIND HOSTING PRESENTATION | April 2017 | page 2

Oxilion acquires JDN ICT Services

12/7/2016

Warburg Pincus invests in 1&1 Internet SE

11/8/2016

Intelligent acquires Openminds8/19/2016

Pulsant acquires Onyx6/9/2016

Voxtel acquires XL Internet Services

3/17/2016

1&1 Internet acquires Home.pl12/30/2015

IS Group acquires Net Ground

11/30/2015

Aurelius acquires COLT's managed cloud business11/13/2015

Sentia acquires Nines10/7/2015

Waterland invests in Intelligent6/15/2015

Daisy Group acquires Pheonix IT Group5/21/2015

Waterland acquires PaaSPlaza2/1/2015

Host Europe acquires intergenia12/17/2014

KPN acquires Argeweb8/1/2014

Vitruvian acquires ASP4All Bitbrains7/17/2014

Oak Hill invests in Pulsant6/16/2014

Broad Horizon acquires Multrix3/1/2014

Host Europe acquires DomainFactory11/29/2013

Cinven acquires Host Europe7/1/2013

GMT & VSS invests in IT–Ernity

Claranet acquires Star Technologies11/1/2012

ASP4all acquires Mcom

7/4/2012

Peer1 hosting acquires Netbenefit's hosting divison

6/1/2012

Pulsant acquires ENS10/28/2011

Pulsant acquires Dedipower9/30/2011

Bridgepoint acquires Pulsant11/12/2010

Dada acquires Poundhost1/18/2010

Denit acquires Dutch Cloud3/14/2017

United Internet acquires Strato12/15/2016

GoDaddy acquires Host Europe12/6/2016

EQT acquires TransIP Group8/31/2016

KKR invests in OVH8/16/2016

IS Group acquires Fortytwo & Redbee4/1/2016

Main Capital Partners acquires Denit2/9/2016

12/22/2015

KPN acquires IS Group6/7/2015

IT–Ernity acquires CloudVPS

11/6/2014

IS Group acquires WideXS7/1/2014

ING invests in IS Group4/24/2014

ASP4all and Bitbrains merge1/9/2014

1&1 Internet acquires Arsys8/1/2013

IS Group acquires NXS

5/1/2013

ABRY Partners acquires Basefarm12/1/2012

IT–Ernity acquires ProServe

9/1/2012

6/1/2012

IT–Ernity acquires DDS City

4/3/2012

HgCapital acquires Zitcom

HgCapital acquires ScanNet12/22/2015

Intelligent acquires Sentia11/19/2015

Interoute acquires Easynet8/9/2015

Intelligent acquires Priorweb6/2/2015

ATP invests in One.com4/28/2015

Waterland acquires Jitscale1/1/2015

Denit acquires Munt Internet9/2/2014

IT–Ernity acquires Bedrijvenweb

ISIS Equity Partners acquires Onyx IT10/18/2011

Host Europe acquires Heart Internet8/1/2011

Montagu acquires Host Europe

9/1/2010

Deutsche Telekom acquires Strato AG11/1/2009

2010 2011 2012 2013 2014 2015 2016 2017

5/1/2013

Capitalmind deals

Private Equity (backed) deals

M&A IN THE MARKETDeal timeline

2009

Strictly private and confidential

Size matters

CAPITALMIND HOSTING PRESENTATION | April 2017 | page 3

M&A IN THE MARKETTransaction multiples

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

<10m 10m - 20m 20m - 50m 50m - 100m 100m - 150m >150m

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

<10m 10m - 20m 20m - 50m 50m - 100m 100m - 150m >150m

Revenue multiple per revenue segment

EBITDA multiple per revenue segment

The graphs reveal a clear trend withincreasing multiples for dealsinvolving targets with higherrevenues.

Size

516 19 22 20

49

66

5

10 14 7

13

17

0

10

20

30

40

50

60

70

80

90

2010 2011 2012 2013 2014 2015 2016

Simple economies of scale areattributable to this effect. In thededicated hosting industry for example,smaller hosting companies often hireself-employed persons to manage aspecific system. But this is only a part–time job, making the hours ratherexpensive.

Larger companies can actuallydirectly employ such persons andsignificantly reduce personnel costs

Number of transactions over the years

Obvious market consolidation in the recent years with growing amount of deals

Strictly private and confidential CAPITALMIND HOSTING PRESENTATION | April 2017 | page 4

M&A IN THE MARKETBuyer examples

TELECOMHOSTING

PRIVATE EQUITYDEDICATED WEB–HOSTING

Large

Medium

Very large


Combining both acquisition strategies will increase the ARPU and customer base


BUY-AND-BUILDCombining acquisition strategies

The most successful way to create synergies is by a mixture of bothacquisition strategies, thus increasing the customer base and increasingthe product offering. In its essence, it is a basic ‘p x q’ strategy, whereboth the price and quantity increase.

Combining scale acquisitions with diversification acquisitions, will likelyresult in increased cross–sell, increased customer base and eventually inincreased ARPU.

After a scale acquisition, the acquired company’s customers can betransferred to the acquirer’s platform, creating one single customer baseto which (new) services can be offered.

Using both strategies, the synergies and positive effects of theacquisitions will be larger as every newly acquired user will likely have ahigher ARPU (due to expanded service offering), increasing totalrevenues.

The ‘Buying Scale’ strategy also works without prior diversificationacquisitions, although it will most likely have less synergies as the newcustomers have access to a smaller range of services. This strategy willproduce similar results as discussed in the previous slides.

Buying base / scale

Capitalmind has analysed over 250 hosting deals in the recent years; thechart below shows the rationale behind the acquisitions.

The majority of acquisition strategies is focused at either increasing thescope of the service offering (34%) or increasing the customer base /buying scale (40%).

Acquisition strategies

16%

34%

40%

9%

Geographical expansion Improved offering Scale Technology

Analysed acquisition strategies 2010 – 2017


Successful hosting companies follow roughly two acquisition strategies: buy scale and / or buy diversification


BUY-AND-BUILDTwo roads to success

Buy-and-build through buying scale Buy-and-build through buying diversification

Buying scale Buying diversification

Company A

Capacity used: 70%

Company B

Capacity used: 60%

High costs and spare capacity1

Acquire for economies of scale2

A acquires B Company BCompany A

Utilise synergies3

Company ABOccupancy rate:

Personnel costs:

Other costs:

EBITDA margin:

Expand service offering through acquisitions1

Integrate acquisitions on single platform2

Drive cross-sell on customer base 3

Company AARPU:

Personnel costs:

Other costs:

EBITDA margin:

Company B Company C

Company A

15m

1m

Company A

15m

80%

Platform ANEW! NEW! NEW!

Company D

1m 1m

Customer base


Our global reach and deal flow enable us to reach out and find the best business partner for you


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Capitalmind

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BI–ANNUAL PARTNERS MEETINGS

AWARD WINNING

Capitalmind has been in the top 10 of theThomson Reuters mid–marketleague tables for many years

CAPITALMINDUnparalleled European and international reach


Global sector team drives deal origination and execute transactions


International leading and award–winning Corporate Finance

United Kingdom: Offices in London, Birmingham

and Nottingham – over 50 deal executive and

research led professionals.

Italy: Top M&A office boutique in Italy with specific

expertise in TMT.

United States: 8 offices throughout the US – some

65 sector–based managing directors.

Japan: Number one M&A boutique in Japan.

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CAPITALMINDInternational sector team


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3. TRACK-RECORD3.3. Completed TMT deals