I was going through my files --- then again and again ---- March was a slow month…but April will be better – at least my firm did three.

Lynchburg VA – Sitestar (OTC: SYTE) bought the assets of Comcation, an Internet service provider whose services also include web hosting. As a side note Sitestar’s CEO, Frank Erhartic has agreed to be on an M&A panel this blogger is moderating at ISPCON.

Australia -  MYOB acquired Ilisys Pty Ltd one of Australia's larger web hosting providers. MYOB provides accounting software and payroll software to more than 700,000 businesses worldwide.

Glendale, CA -  Pro Net Hosting acquired Homepage Universe which doubled the firm’s size to over 100,000 shared and dedicated hosting domains.

Denver, Colorado - ViaWest, acquired Dallas based Dataside. With the Dataside acquisition, ViaWest's annualized revenue will exceed $100 million by the fourth quarter of 2008.

London -  Freedom4 Communications PLC, signed an agreement to sell its Hosting and Network Services Division to Host Europe WVS Ltd for 120.0 mln stg. ($235m)

Minneapolis -  VISI acquired Infinity AccessNET, a business-focused Internet Service Provider. 

Obviously not all inclusive - but from the NCC files.

More about Tom:

New Commerce Communications

E-Mail Tom Direct

“Certainty? In this world nothing is certain but death and taxes.” Except for not patenting electricity Benjamin Franklin is usually correct.

In regards to the life cycle of your web hosting company his timing is impeccable.

Your company should do everything possible not to pay taxes. You can either give it to the government, great benefit there, or grow your business and hence the economy. Hire more employees (let them pay taxes), spend money on capital equipment and that whole channel line pays taxes. But remember you don’t want your company to pay taxes. Not on April 15th.

Smart and profitable industrialists, hopefully like you, avoid taxes. That is one of the commanding reasons for acquiring a business.  Most web host firms have lousy balance sheets. They have depreciated the assets and have nothing to shield profits, they pay taxes.

I always find it sort of magical that you can acquire an asset (buy a company) that was fully depreciated yesterday, put it on your balance sheet today (stepping up the assets as accounts say) and voila! you have a complete new depreciation schedule protecting your cash. Sort of like asparagus cropping up in the spring, where did that come from?

So you say…“I am profitable but don’t have any money to make an acquisition Tom”. Even a better reason to take out a government loan. That is exactly what not paying taxes is, a differed no interest loan from the government. And if you screw up sort of risk free.  

Now Ben was correct…nothing is certain but death and taxes. In your case the death of your company. Don’t frown, this is just the end of the investment period…maybe the buyer of your company will keep the name, who cares?…your out. Now you want to pay a lot of taxes, big time taxes. You have taken those government loans and parlayed them into your success. As Franklin said taxes were certain, he just did not state when.

More about Tom:

New Commerce Communications

E-Mail Tom Direct

Laguna Niguel, CA -  Alentus Corporation acquired John Macleod’s AO Technologies’ Columbus Ohio Data Center. It is rumored that Alentus is picking up a company across the pond. AO provides high-end dedicated and streaming media services

Leeds, UK -  Masternaut Three X, acquired FibreCity for GBP 6 million ($12 million USD). Deal added 25,000 sq/ft data center.  The acquisition of FibreCity enables Masternaut Three X to provide more extended hosted back-office solutions.

Dallas, TX - Affiliated Computer Services, Inc. (NYSE: ACS)announced an agreement to acquire sds business services GmbH, a Germany-based provider of data center, infrastructure services, and application-related solutions from Waterland Private Equity Investments. ACS will pay approximately $67 million (euro 46 million), including the assumption of liabilities, to purchase sds. The acquisition is expected to close in March 2008 following regulatory approval.

Charlotte, NC - TITAN Technology Partners, a provider of hosted and managed industry solutions, acquired Singapore based ESP Consulting.  ESP operations is and managed services provider focused on delivering SAP solutions.

Belfast, Ireland - IUTV Media plc today acquired of Tibus, a leading Ireland web development company from Anderson Spratt Group Holdings for GBP 5 million ($10 million USD).

Chevy Chase, MD - Opus8 Inc. affiliate, Clear Day Acquisition Corp., has acquired a controlling interest in Lore Internet Systems. Terms of the transaction were not disclosed.  Lore services includes, managed datacenter hosting and co-location. The acquisition has approximately doubled Pro Net's size and it is now providing shared and dedicated hosting for over 100,000 domains.

Sao Paulo, Brazil  - Universo Online S.A. (UOL) acquired the "clients" of web hosting company Digiweb  UOL is now the third-largest provider of web-hosting services company in Brazil. See my March 6, 2008 blog for additional information and comment.

Rochester, NY - Layer 8 acquired the Web hosting and information technology support services branch of DigiNex. RACD

Obviously not all inclusive - but from the NCC files.

More about Tom:

New Commerce Communications

E-Mail Tom Direct

Last week Universo Online S.A. (UOL) acquired the "clients" of web hosting company Digiweb, also of Sao Paulo, Brazil. In November, UOL also acquired the web hosting "clients" of Plug In another Brazilian firm.

The importance:  UOL is now the third-largest provider of web-hosting services company in Brazil.

UOL did not mention the "third largest" part after the Plug In acquisition --- letting me believe that Digiweb was a fairly large deal.

I check out UOL - Basically an Internet/media powerhouse. They are vertical, horizontal, diagonal and the karma sutra all rolled into one. You really have to read the corporate bio --- Brazilian portal with 1.4 billion page-views a month, 1.7 million content paying subscribers, 1 million broadband customers…and now the THIRD LARGEST web hosting company in Brazil (Which I may add has a population of 184 million).

They want to collect the tolls on the electronic highway...including all entrances and exits. Someone has to collect.

The UOL financials…some great info…

• My favorite part: "The Company had no outstanding loans or financings at the end of the 4Q07". (Same position as Microsoft)
• They have a lot of cash - $284 million USD.
• 2007 EBITDA - $91.8 million USD - a fantastic 29% of net revenues.
  

The largest shareholder (41%) is the San Palo newspaper owner Folhapar.

UOL stock has dropped some 60% in the past 12 months...but the one thing I know about newspapers, they are long term players with long term visions. 

And the movie Brazil... 

More about Tom:

New Commerce Communications

E-Mail Tom Direct

First we will start with an alert---because timing can be everything.

Marbles… One of the most important parts of any transaction is how many marbles you get to keep. If you are considering selling your company in 2008, 2009 or 2010 please run down (not just trott, put off til' tomorrow...I said RUN) to your tax accountant. If it would be a stock sale, which frankly you really don’t know today, you could be in trouble.

Why? The Bush tax reductions will soon start to evaporate, specifically the long term capital gain treatment which expires December 31, 2008 ---- yes a short 10 months away. In a stock transaction it could cost you another 5% in taxes.

Well it is only 5% some people may say. Yes but it takes almost 7% to make that up after paying taxes on the incremental amount you need to cover the poor timing.

So if you are considering selling in 2008 you should start earlier than later. And if you are considering 2009 ---- think again.

 ========== MORE ABOUT TOM ==========

New Commerce Communications

E-Mail Tom Direct

Tucows (AMEX:TCX) has lost 50% of its market value since July 2007. Yes it has dropped from $1.26 to $0.63 a share, a 50% drop over the last six months.

The Company just released it’s year end financial statement, so now is a good time for a quick review of the basics:

-    Annual revenues were $74.6 M vs. $65 M for the previous year – up 14%, nothing wrong there.
-    Net Income $2.6 M vs. $2.1 M – up 24% -- direction is good.
-    EBITDA $8.7 M vs. $5.8 M – up 50% -- something to write home about.

Tucows has a market cap of $46.5 million. The overall value could be stated as:

-    5.3X EBITDA
-    .62X trailing revenues.
-    PE Ratio 18.68

So why is Tucows trading so low? Why has it dropped a whopping 50%? As a high tech firm it deserves at least a 40 P/E ratio. It should be trading at a 1X revenue range, frankly more. That would take it back the July stock price.

The problem is the Tucows balance sheet. The Company has $80 million in liabilities. How is Tucows going to make it? Given current EBITDA one could take almost 10 years to pay it back, not including interest. The game is over; tank the deal, time to trade out.

WRONG WRONG WRONG ---- Tucows needs more liabilities, I think liabilities should go through the roof. They should be the master of liabilities; the street just doesn’t get it.

Financially speaking there are not many firms like Tucows. They sell millions of little things, sort of like Coca Cola. However those little things are domain names, selling for lets say $12.  Since they are paid “up front” for a specific period, usually one year, the revenues for these are recognized at $1 per month, not the $12 when the transaction occurred. Sort of like cash vs. accrual accounting.

The bulk of the liabilities time out in one year, when hopefully, they start all over again. Look at it as millions of itsy bitsy revolving loans.

Of the $80 million in liabilities, $50 million (63%) is tied to deferred revenues resulting from domain registration sales. Domain name registrations account for 73% of revenues.

Usually I hate deferred revenues (which is a topic for a separate writing). However for Tucows it is the business model.

I might be naive, but I don't think many people drive up to Tucows and say..."I stopped using my domain name...I want my $3 back". I have a hard time rationalizing how GAAP, in the practical world, should apply here.

Tucows – Has a deferred problem. One the street does not understand, and one I think is holding the stock price down.

========== MORE ABOUT TOM ==========

New Commerce Communications

E-Mail Tom Direct

 

January was a bit slow --- this is often the case as firms often try to close transactions by the end of the year.

Sunnyvale, CA -- Network Appliance, Inc. NetApp (NASDAQ:NTAP) completed the acquisition of Boston based Onaro, a datacenter automation solution company in a $120 million transaction. It is reported that backers put about $9.5 million in Onaro, which looks like a great return.

Las Vegas NV-- Dialpoint Communications Corporation (OTCBB: DLPC), acquired the assets of South Carolina based Hostigation.com. Dialpoint issued 333,334 shares --- a deal which in another blog I noted was worth $50k in an all stock transaction.

Niagara Falls, ON - Canadian based Vision Online Network was acquired by Deli India based Real Value Hosting. Vision Online Network specializes in Windows based web hosting.

Duluth, GA - Ralph Smith's Fat Jack Hosting Acquired HostMyProxies.com, a proxy website host. HostMyProxies.com is based at an undisclosed location.

Dallas, TX – Affiliated Computer Services, Inc has acquired Syan for approximately $60 million. Syan’s trailing twelve-months revenue was approximately $75 million. The transaction was funded by existing cash on hand. Syan has several large data centers in the UK.

Tempe, AZ - Greenstreet Real Estate Partners acquired the Tempe One (Tempe, AZ) data and call center for $30.3 million.

Edmonton, AB, Canada – California upstart Enacten acquired all of the shares of Edmonton based Alentus Corporation in an all cash transaction.  Alentus provides dedicated/managed and shared hosting services. New Commerce Communications (this blogger) represented Alentus in the transaction.
   
Pittsford, NY - Spider Graphics Corporation and ITX, a web technology and hosting firm merged. The new name is Spider ITX, very creative.

Overland Park, KS -  Erickson Solutions Group has bought the client base of Nothing But Net a company that concentrates on Web and e-mail hosting. Hopefully the acquisition will help the Erickson corporate website.

Raleigh, NC - Hosted Solutions has acquired a new data facility, it's second in Charlotte, NC. The site adds 7,600 square feet of floor space.

Obviously not all inclusive - but from the NCC files.

 ========== MORE ABOUT TOM ==========

New Commerce Communications

E-Mail Tom Direct

 Microsoft has never borrowed any money before, the envisioned $44.6 billion ($44,600,000,000) buyout of Yahoo may stain the balance sheet.

All business owners know how tough it is to borrow money. It is especially hard for that first time borrower. 

Bill...we need your last three years W2 statements.

Bill...you started this company with assets some would say were pilfered, please supply documentation.

Bill...we need to pull your FICO score, you can sign this release, by the way we are waiving the $25 report fee.

Bill...we understand you recently gave away $30 billion, we need a cash flow analysis.

Bill...we usually require a personnel guarantee from senior management, how much equity do you have in your home?

Yes - life is tough for first time borrowers.  

 ========== MORE ABOUT TOM ==========

New Commerce Communications

E-Mail Tom Direct

I noticed that Dialpoint Communications Corp (OTCBB: DLPC) completed two acquisitions in January;

The first: Acquisition of Hostigation (Timothy Flavin), an asset transaction where the owners accepted 333,334 shares of Dialpoint stock. This stock has already increased 5 to 20 times (depending how you interpret the agreements) since the deal was inked.

The second: Acquisition of Brian's Computer Center, the press release stated “…the Company will issue unregistered shares of its common stock equal in the amount of 107,843 shares. The certificates representing the shares of common stock will bear restrictive legends.”

Dialpoint has a market cap of $38.6 million.

Am I impressed? Peeling back the onion...

•  Dialpoint has  13.3 million shares outstanding - thats a lot.
  
• The Hostingation deal has a value of $50,000 at closing...a tiny deal
• The Brian’s Computer deal value looks like it was $170,000...another tiny deal.
• The stock increased from $0.51 on 1-17-08 to $2.90 today...thats a big gain.
  
• Dialpoint President  Billy Radford ownes 11.25 million shares...Can you say  $32.6 million?
• Over the last two weeks an average of 3,000 shares/day were traded...why bother.

If this was a deal put before one of my clients I would highly suggest we conduct extensive due-diligence prior to accepting a deal like this.

In these deals there is NO cash. The sellers probably cannot be liquid for at least 12 months, and with the current float it would be extreamly hard to sell the shares.

If you are selling your business I would tell you only to take stock as a small percentage from firms that are similiar to Dialpoint. The stock should be the upside - not the whole banana.

Other than the press releases and a couple of SEC docs I could find out almost nothing about Dialpoint. I will however admit they have been very successful in getting thousands of these two press releases pasted all over the Internet.

========== MORE ABOUT TOM ==========

New Commerce Communications

E-Mail Tom Direct

 

This TV box has been staring me in the face --- I look at it often --- It turns on in the morning and I usually see it near bedtime. Between those bookends of life I stare at a computer screen. There is a break when I look at a smaller form with my Tilt phone. I am a communicator.

My e-mail saved me today when DTV4PC promised me 1,056 live channels on my PC. I have always wanted to watch live re-runs of the Mongolian version of The Price is Right.

If I owned a webhosting firm I would place one of my bets on TV, video hosting, streaming delivering or whatever...Adult purvayors (content providers) took the lead but now we are mainstreaming - streaming everything. This takes just what you want - people that want your stuff so you can deliver their stuff. Heavy demand on bandwidth, servers and everything else that generates revenues. Yes I would bet my bandwidth, technology, personnel, training, advertizing, reputation and all the cost centers to be a prime deliverer.

I want to test drive every car in a 3D, virtual world before I buy. Be able to look down and see where the cup holder is located.

You can either own content, or deliver content.

========== MORE ABOUT TOM ==========

New Commerce Communications

E-Mail Tom Direct

I was struggling writing  a blog about web host valuations - you know the measurements, metrics and other forms of long division (A blog which I will write sometime.)  when I was saved  by news on the radio....and confirmed on Fox...

Web Hosting Companies on sale...it was all over my news.

At noon this date (January 22, 2008) web hosts firms are on sale. Companies had the ability to purchase web host firms today for a price less than yesterday.

This is 100% the truth - and will act as a short primer on valuations, the long division stuff I keep harping on.

About 11AM today the Fed lowered the benchmark overnight lending rate to 3.5 percent from 4.25 percent, the Fed wasn't even going to have a meeting for a week - took everyone for a surprise.

Earthshaking stuff, a 750 basis points (3/4%) cut is massive...check out your cc bill or mortgage in a couple of months and multiply by 100 million. 

How does this web host savings work Tom?  Thought you would never ask.

You see a lot of people (FOR EXAMPLE PURPOSES ONLY ---- I DON'T BELIEVE THIS VALUATION)  throw around a value of 1X annual revenues (12 months) as a value for shared hosting companies --- they have for quite a while --- they will tomorrow.

Now a buyer, borrowing money to buy the web hosting company, has around an 8% savings in juice today over yesterday - money that could be used to pay for the acquisition. For the buyer this is a bargain as he/she is still buying at the 12X tomorrow (Because someone believed value metrics are static) just like they did yesterday -- talk about a discount -- the web host company is on sale. 

There is a lot involved in valuations -- valuations are largely a factor of the ability to use cash (Cash before DAIT, EBITDA etc.) If you need cash to pay debt you can't spend as much up front -- lowering valuations. 

But what will the buyer do with that extra money? What will you do with your cc or   mortgage savings? You buy more stuff - the host company buyer buys more hosting companies - supply side economics.

Oh yes, in my opinion web host values will go up due to this.   

Suggested additional reading in this tutorial: The Ultimate EBITDA

========== MORE ABOUT TOM ==========

New Commerce Communications

E-Mail Tom Direct