What Can Go Wrong When Purchasing a Hosting Business or Customer Base? A Buyer’s Perspective

Buying any new business is complicated to say the least and buying a hosting business or customer base is no different and possibly even more complex. Becoming educated on the process and potential pitfalls would behoove you. When looking to purchase a hosting company there are many aspects that a buyer needs to be aware of not the least of which is what can go wrong. The purchasing process is time consuming and costly, so you want to make sure you have evaluated and reviewed all provided information and asked the critical questions before proceeding. Below are some elements to consider as you go through this process, but this is by no means an exhaustive list.

Hosting Acquisitions: What Could Go Wrong?

Poor Fit

A buyer needs to take into account plan prices, customer profiles, type of hosting and the geographic location of the customers to name a few. These can all have a serious impact if they are not compatible with the systems and processes you currently have in place to support your customers or ones that you are capable of implementing.

Don’t rock the boat!

Another common issue we see arise is making too many changes too quickly post close. Changing credit card details, IP and billing addresses as well as changing support numbers, process and service levels are all going to cause instability in the customer base through either a lack of customer confidence or service outages.

Support Levels

In order to achieve your targeted ROI, it’s critical that you ensure churn figures are low. You need to be able to maintain and ideally grow the customer base of the business you purchased and not being able to support the customers to the extent they have been used to will lead to increased churn rates. Understanding the expectations of the customer base you are buying is important. You need to know the hours of support and responsiveness they have been accustomed to and be able to replicate this. For example, do customers have the owner’s cell phone number and use this directly for support? Are they expecting to be supported in another language? What hours are they expecting to be able to reach you or someone? Has support been outsourced historically and if so, how was that structured vs the in-house team? Example time of day, level of support, language etc. Has support been provided by an overseas team and how reliable has that been?

Migration

If as part of your purchase you are migrating customers, you need to have a very well thought out plan to avoid the possibility of a botched migration. One very common issue we see and one which is often overlooked is underestimating the time involved and complexity of migrating data between platforms or systems. Migrating customers to different platforms (billing systems, control panels, etc) can also prove to be problematic again causing instability and delays in the process leading to longer than expected contract periods with old data centers, support staff and 3rd party ISV vendors.

Domains Resolving to Seller’s Servers

As a buyer you should be verifying that the list of active customer domains are actually still pointing to the seller’s servers. It’s common that some customers may no longer be on the seller’s servers even if the seller has these customers listed as active and without verifying where the domains reside, this only becomes apparent on the billing anniversary date. This is not a significant issue for customers on a monthly billing cycle but for those on a yearly or less frequent billing schedule, this may not be immediately apparent.

Buying customers that pay in another currency

If you are purchasing a business or customer base with a large international market, there may be challenges supporting other currencies. This can often prove to be more complicated than it may seem initially. It may involve opening an office in the country and/or having to file tax returns in another country. Another issue to consider is that supporting foreign currencies can create challenges with issuing refunds and for those customers accustomed to paying by check where a physical address is needed to receive the checks and ultimately have those checks be negotiated by the receiving bank.

Establish Rapport with the Seller

As is often the case, a buyer and a seller will have no prior relationship. In these cases, establishing rapport with the seller can sometimes prove to be problematic. It is however critical for an effective and successful transaction that both buyer and seller have trust and a constructive relationship – particularly in the event that something goes wrong. Strong rapport makes it much easier and less costly by avoiding what might otherwise be a long and drawn out legal battle. This is even more crucial in circumstances where the seller is under contract to provide post sale support for some predetermined period of time. If follow up support is required, this may be difficult to obtain with a constrained relationship – particularly if there is no incentive to assist once the deal is complete. Initially getting an endorsement from the seller to their customers will be important if the customers will be impacted in some way by the transaction and this is particularly critical where the seller has had a strong personal relationship with their customers.

Purchasing a new hosting company is an exciting and rewarding endeavour. It is even more rewarding when done right and you, as a buyer, are aware of the implications of the deal and deal structure. Education and experience are a buyer’s best resource. Don’t be afraid to ask questions of the seller and your advisors including your broker – it’s your time and money!

As a buyer, you might also be interested in reading more about why sellers sell by going here.

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