The Host Broker FAQ’s for Sellers

How long will it take to sell my business?

It varies greatly from as little as 2 weeks to as much as a few years.  We can give you a better idea once we understand some of the key elements of the business structure and how those will appeal to the typical buyers we encounter.

What do I need to do and what do I need to provide you with?

For us to list your business, we need a signed engagement agreement as well as a completed prospect summary form which provides some background on your business.  Ideally it would be best if we could put together a package which includes a background summary as well as financials for the past 2 years and  copies of any lease agreements or any contracts.  An export from your billing software stating how many clients you have and what each is paying and the frequency at which they pay would be very helpful to any buyer.

How much can I expect to receive for the 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.

How are you compensated?  

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

What if I or some of my staff want to stay on with the new owner?  Is this possible?

This question is common and it really depends on what the buyer wants. If this is a requirement for you, it can be included in the listing description, however, please be aware that this will limit the interest.  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 effiiciencies to be gained by acquiring more clients to support their fixed costs.  Adding more fixed costs by retaining you may make the deal unworkable for a buyer. On the other hand, some buyers need help and another manager on the team may be a perfect fit.

How much help will a new owner need from me / us?  

Typically they will need your help for a few days to a few weeks depending on the size and complexity of your business.  This would need to be worked out between you and the buyer.

Will a new buyer want to keep the equipment and data centre contracts?

This question is also common and the answer is it depends.  Obviously if the buyer has a better cost structure than you have in place, they aren’t likely going to want to keep your vendors for any longer than they need to.  In some cases there may be a short term need while they migrate or secure more room in their 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, you have managed to secure particularly attractive rates, this could add to the attractiveness of your deal.  The best case scenario however is for you to secure contracts on a month to month basis – at least when it comes to selling the customer base.

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 buyer?  What if they don’t pay me what they promise?

This is the classic chicken and egg game. As a seller you don’t want to give root access to your servers without funds but the buyer doesn’t want to release funds unless they have root access.  Generally the buyer makes the payment first and access is then immediately granted. If there is a concern from the buyer, 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 buyers for me?

We don’t directly screen buyers however we have been doing this for a long time and work with others in the industry  so we certainly can share feedback on a buyer’s history of other successful transactions and conversely if we are aware of deals that have not gone so well. We will also not engage with any buyers (or sellers for that matter) who we know have questionable histories or business practices.

Do you have buyers from outside of North America?  

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

Do I need a lawyer / attorney?

Yes you should have someone who can help you review a purchase agreement.

Do I need an accountant?

You should have an accountant to discuss any tax implications for selling the customer base (asset deal) or the implications for selling the company (stock deal). 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 a due diligence period to be?  

This can last anywhere from a few days  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.  This must be balanced with being prudent in how much confidential material is disclosed.

How do I make sure that my customers don’t find out I’m considering selling?  

This is an important consideration and one that should be taken seriously. Our listings are purposely vague so that it will be very difficult for anyone to guess the identity of any particular company. All interested buyers must sign an NDA which of course is no
guarantee, but a strong deterrent. In the event that you are using a 3rdparty marketplace website, we also recommend not publicly posting your business for sale in a way that will give away your identity.  For example you should create a profile that is an alias and use a web-based email address.

I know many of the customers personally. How do I make sure they are taken care of?

If you have built your business from the beginning and know many of your customers personally (sometimes these may also include friends and relatives), finding the right fit with a buyer will be extremely important. It may be that in these cases  finding the right “home” for these customers is more important to you than the financial component of an offer. If this is the case, we suggest we mention this in a listing and that you carefully evaluate each buyer on the basis of intangible factors such as their experience handling a similar profile of customer (same technology, some OS, same control panel etc) and that they have a history of successfully completing other transactions. Your rapport will be very important in these cases and you may want to meet with the buyer in person before agreeing to a deal.

For more information on selling your business, check out our blog post: What to consider before selling your business.