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Understanding Company Valuation: Insights from Cheval Capital, Inc.

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presta
13 diapositives · 278 Views · Jul 13, 2014

Discover the methodologies and factors influencing company valuation through the insights provided by Cheval Capital, Inc. This presentation covers various valuation methodologies, including historical and projected multiples, price-versus-risk terms, and key factors affecting valuation. Learn about the dynamics of the hosting and ISP market, recent deal volumes, and how annualized recurring revenue plays a crucial role in determining worth. Gain valuable knowledge whether you're a buyer, seller, or investor in the evolving digital marketplace.

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  1. How Much is Your Company Worth? Hillary Stiff Cheval Capital, Inc. April 27, 2007

  2. Agenda • Cheval Capital, Inc. • Valuation Methodology • Multiples-Historical, Current and Projected • Terms-Price Versus Risk • Factors in Valuation • Deal Volume • Summary How Much Is Your Company Worth – Cheval Capital, Inc.

  3. Cheval Capital, Inc. • Who we are. • Boutique investment bank active in hosting/ISPs since 1996. • Completed over 85 Hosting/ISP acquisitions, 20 in 2006 and 6 in the first few months of 2007. • Who we work for. • Endurance International Group, Verio, Rackspace, Nextel, etc. • Clearinghouse for small and mid sized companies. • What we do. • Use our contacts, market knowledge & experience to get the best terms and increase the likelihood for success. • Distribute a weekly deal listing with over 30 sellers, creating a deal marketplace. How Much Is Your Company Worth – Cheval Capital, Inc.

  4. Valuation I • Generally quoted as a multiple of recurring revenues. • Multiples can be calculated based on historic recurring revenues; trailing twelve months or trailing six/three months annualized. • Multiples typically calculated on current annualized recurring revenue basis. • Non-recurring revenues are typically not included or if included will be calculated at a lower multiple with payments made post close. How Much Is Your Company Worth – Cheval Capital, Inc.

  5. Annualized Recurring Revenue • Annualized Recurring Revenue is the most commonly used revenue base for valuation purposes. • Illustration of how to calculate Annualized Recurring Revenue. • 10,000 customers @ $10/mo x 12 pmts = $1,200,000 • 15,000 customers @ $15/mo x 12 pmts = $2,700,000 • 25,000 customers @ $25/qtr x 4 pmts = $2,500,000 • 3,000 customers @ $100/yr x 1 pmt = $ 300,000 • Total Annualized Revenues = $6,700,000 How Much Is Your Company Worth – Cheval Capital, Inc.

  6. Market Conditions – Buyer Types • Consolidators • Makes up the bulk of all buyers. • Looking to add customers to their existing infrastructure. • Concerned with profitability of acquired customers on their infrastructure. • Platform/Strategic buyers • Looking for a base of operations for a new product line or company. • Concerned with systems, processes, network, employees & profitability. How Much Is Your Company Worth – Cheval Capital, Inc.

  7. Valuation II • Consolidating buyers concerned with their profitability not the seller’s. • Buyers look at a variety of things to determine profitability of seller’s revenues to them. • Bandwidth usage • ARPU • Customer growth and churn rates • Support & infrastructure intensity • Assets used to produce revenues are not separately valued – they are part of the revenue valuation. How Much Is Your Company Worth – Cheval Capital, Inc.

  8. Market Conditions - Multiples digitalNation Multiple of Annual Revenue 2.5x – 7.0x 2x – 4x 1.0x – 2.5x 0.5x-1.2x How Much Is Your Company Worth – Cheval Capital, Inc.

  9. Terms - Price Versus Risk • Price paid (and when) is a direct function of; • How profitable the business is to the buyer; and • How much risk there is of realizing that profit. • Two examples • 100% paid upfront in cash means more risk for the buyer and thus a lower price. • 100% paid over time based on profits means more risk for the seller and thus a higher price. How Much Is Your Company Worth – Cheval Capital, Inc.

  10. Market Conditions – Future Multiples • Lower industry growth rates • High churn • Pricing pressure • Noisy advertising environment • No big new buyers • Google, Yahoo, etc. • No barriers to entry 10x 1x Hosting Transaction Multiples 1999 2007 How Much Is Your Company Worth – Cheval Capital, Inc.

  11. Valuation III – Other Factors • Control Panel • Billing Systems • Credit Card Information • OS (Linux)‏ • Responsive Seller • US Based • Clean Records • Type of Hosting • Deal Size (under $100,000 or larger)‏ • ARPU • Pure Play How Much Is Your Company Worth – Cheval Capital, Inc.

  12. Market Conditions – Deal Volume • Sharp increase in numbers of buyers. • Buyers looking to offset difficulties in organic growth (churn, advertising noise, etc). • More companies have matured and have the systems and management to do an acquisition. • Most are small to medium sized hosters buying out of cash flow. • Sharp increase in numbers of sellers. • Customer base growth slows/stops/declines. • Management or investor fatigue. • Static multiples. • Out of space or power. How Much Is Your Company Worth – Cheval Capital, Inc.

  13. Summary • Good News • Transaction values stable. • More companies buying & selling. • Transactions fairly easy to accomplish for mainstream sellers at market multiples. • Deal volume increasing. • Not so Good News • Transaction values at risk if big players reduce industry profitability. • Unique companies difficult to sell. • Few well financed large buyers. How Much Is Your Company Worth – Cheval Capital, Inc.