The Host Broker FAQ’s for Buyers

How likely is it that you might have what I’m looking for?

Please review the list and take a look since there are deals that range in size from very small to about the $4 million mark beyond which they are generally presented to specific qualified buyers. The technologies and control panels again range and we never really know too far in advance of what is coming so it makes sense to monitor the list. We have structured the list so that the newest entries are at the top and by doing this, you only need to review the newest ones from update to update.

What do I need to do to get more information on a listing?   

We need 2 things: 1) A signed broker’s agreement which outlines what we do and how we are compensated and 2) a non-disclosure signed – usually you would be signing the sellers but in some cases you would need to provide your own.

How much can I expect to pay for a business?  

This is a hard question to answer because there are so many variables – too many to list here but an average range in the hosting space tends to be about 0.7 to 1.4 x the annualized recurring revenue.  Services with a COGs such as domain names are typically valued at a net rate.  If you sell domains for $10 and buy them for $9, the value is $1 per domain. The figures are also influenced by how much interest there is from other buyers.

How are you compensated?

We are compensated by the buyer for a successfully completed transaction which is based on you paying the seller. Our fee is paid in line with the payment terms of the transaction.

What if I want some of the staff or the seller to stay on with me / us to help with the transition or future growth?  Is this possible?   

This question is common and also depends on what the seller wants. If this is a requirement for you, look for a mention of this in the listing description, however, please be aware that this will limit the available options.  Although this may be very desirable for some buyers, it may also be looked at as a further cost to others.  Most buyers are consolidators looking for efficiencies to be gained by acquiring more clients to support their fixed costs.  Adding more fixed costs by retaining staff may make the deal unworkable for you. On the other hand, perhaps you need help and another manager on the team may be a perfect fit.

How much help will the seller provide to me / us?

Typically they will make themselves available for a reasonable period of time from a few days to a few weeks depending on the size and complexity of the business.  This would need to be worked out between you and the seller. In some cases, the seller may agree to some amount of time to be included and beyond which there is a fee.

Is the equipment normally included in the sale price?

This question is also common and the answer is it depends.  Obviously if you have a better cost structure in place than the seller, you aren’t likely going to want to keep their vendors for any longer than you need to.  In some cases there may be a short term need while you migrate or secure more room in you current facility, etc., but those looking to consolidate are looking for cost savings to be gained from moving everything under one roof. If on the other hand the seller has managed to secure particularly attractive rates, this could add to the attractiveness of the deal.  The best case scenario however is for the seller to have secured contracts on a month to month basis.

Should I consider an asset sale or a share (stock) transaction?   

An asset sale is by far the most common and also the simplest and fastest structure. There are reasons a seller or buyer may prefer a stock deal but they are specific to your situation.  We would be happy to go over these with you individually.

How do I know I can trust a seller?  What if we don’t get what we think we’re supposed to be buying?

This is the classic chicken and egg game. As a buyer you don’t want to hand over the funds until they have given you root access to your servers but they don’t want to give you root access without funds.  Generally the seller makes the payment first and access is then immediately granted. If there is a concern from either side, you might want to consider using an escrow service or agent however it will be important to discuss who will be bearing the costs for this.

Do you screen sellers?

We don’t directly screen sellers however we have been doing this for a long time and work with others in the industry and so we certainly can share feedback on a seller’s and if we are aware of deals that have not gone so well in cases where they may have sold another business or brand or portion of their customer base. We will also not engage with any sellers who we know have questionable histories or business practices.

Do you have sellers from outside of North America?

Yes although most are within North America. As a buyer, you certainly have control over who you decide to engage with.

Do I need a lawyer / attorney?  

Yes you should have someone who can help you review a purchase agreement and in most cases the buyer has this drafted and covers the cost.

Do I need an accountant?

You should have an accountant to discuss any tax implications of buying the customer base (asset deal) or the implications for buying the company (share or stock purchase). There may also be other implications around employee terminations, early termination of contracts, evaluating offers and risk factoring in the time value of money etc.

How long should I expect an acquisition process to take?   

This can last anywhere between a few days and up to about 90 days but is directly related to the size and complexity of the transaction. Also the more information provided up front, the less due diligence will be required and the fewer surprises a prospective buyer may find.  Once you have an agreed upon offer, you sign a letter of intent and this should include a no shop clause giving you exclusivity for a period of time – usually 14 days to 45 days. Once this is done and assuming both parties still want to move forward, the agreement is signed and the transaction closes.  This is usually somewhere between 1 to 3 months in total but obviously can be longer.

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