cloud valuation - m&a - hostingcon 2010

Tom Millitzer, President - NCC

Tom Millitzer – President NCC International

CloudTelecom

Valuations

MatriXIn A New

Tom Millitzer, President - NCC

Tom Millitzer – President NCC International Internet M&A Firm Founded 1994

Over 300 Completed Assignments

Sold our first Hosting Firm in 1997

Represent Selers

Tom Millitzer, President - NCC

Tom Millitzer – President NCC InternationalI want to do business

with you....

tm@com-broker.com

Tom Millitzer, President - NCC

What we will do today…

Valuation Theory in the 4th and 6th Dimension

Deals

Cloud Valuation and the New Matrix

Where does this Cloud between Internet and Telecom…

Deal Strategy Timing

Tom Millitzer, President - NCC

The provider…

End user. . .

Tom Millitzer, President - NCC

Rule of 4 – Valuation Theory

Multiple of EBITDA

Multiple of Revenues

Tom Millitzer, President - NCC

…. Operating in the 4th Dimension

Classic “Shared Hosting” 1X Annual Revenues

.25 X 4 = 1

The base acquisition should pay back in 4 years.

25% EBITDA

Operating in SYNERGY Dimension

• SYNERGY………

Tom Millitzer, President - NCC

… WE Reduce Costs

… WE Build On Our Efficiencies

… WE Leverage Assets

Tom Millitzer, President - NCC

…. WE Operate in the 6th Dimension

6 x EBITDA = 4 x Post Synergy

• Synergy should move most deals to a 40% Accretive EBITDA

Tom Millitzer, President - NCC

…. Operating in the 6th Dimension

Text

4 X 6 X

Tom Millitzer, President - NCC

…base 4 to 6 X EBITDA Valuation Range4-6 EBITDA is often the “comfort” or “negotiating start range ”The greater the synergy the greater outcome and possibly the new decent “Inverted Synergy” outcome.

Tom Millitzer, President - NCC

…base 4 to 6 X EBITDA Valuation Range is the floor for Cloud services

Tom Millitzer, President - NCC

…ENOUGH …

We want to look at some real deals…

Tom Millitzer, President - NCC

… March 2010 TDS acquires

Tom Millitzer, President - NCC

• – (NYSE:TDS, TDS.S)

• 8th Largest Telephone Company • 750 thousand customers• $5 billion in annual revenues • $670 million cash on hand.

• Visi – Managed Hosting – Cloud entrant

• $10-12 million Annual Revenues –

Tom Millitzer, President - NCC

…TDS / Visi --- the deal

• $17.5 Million Cash• 1.45 to 1.75 X annual revenues• 5.8 X EBITDA (assuming $12m rev X 25%)

• $17.5 Million Cash• 1.45 to 1.75 X annual revenues• 5.8 X EBITDA (assuming $12m rev X 25%)

Signal Hill - Represented Visi

Tom Millitzer, President - NCC

…TDS / Visi deal - revealed

• - Visi has been transitioning - ISP to Hosting Company.• - Visi has been transitioning - ISP to Hosting Company.

- Revenues 50% broadband - 50% Hosting Related.

Hosting portion possibly: 2X Annual Revenues 8X EBITDA

May have been higher.

- Visi launched Cloud in December 2009

Tom Millitzer, President - NCC

…TDS / Visi –….• - They speak the same language.• - They speak the same language.

- TDS acquired product line to sell into 200,000 (est.) SMB’s

- A product to increase customer stickiness and loyalty.

- TDS understands DSL and Broadband - Will achieve synergies.

- TDS obtained a product line outside of PUC rate regulation.

Tom Millitzer, President - NCC

…Visi deal – great timing….

- Total tax savings up to $1,940,000 – 11.1% of the deal.

- $20 million to obtain the same result as of January 1, 2011

Tom Millitzer, President - NCC

…8x8, Inc. Acquires Central Host – May 2010

Tom Millitzer, President - NCC

• (Nasdaq:EGHT)

• VOIP Company• 20,000 SMBs (avg rev - $250/mo.)• $63 million annual rev (ttm)• $17 million cash on hand.

Central Host – Managed Hosting $1 million Annual Revenues – Avg account $2,300/mo.

Tom Millitzer, President - NCC

…8x8 / Central Host --- the deal

• $1.6 Million• 1.6 X annual revenues• 6.4 X EBITDA

• $1.6 Million• 1.6 X annual revenues• 6.4 X EBITDA

NCC International - Represented Central Host

Tom Millitzer, President - NCC

……what 8x8 acquired…

- 8x8 acquired product line to sell into 20,000 SMB’s

- A product to increase customer stickiness and loyalty.

- Leverage a great sales organization.

- Increase margins and increase Avg. Rev.

Tom Millitzer, President - NCC

…Savvis Acquires Fusepoint – May/June 2010

Tom Millitzer, President - NCC

• (Nasdaq:SVVS)

• IT – Cloud – Managed – Colo - Bandwidth• 4,200 IT customers – Likes vertical markets• $870 million in annual revenues • $146 million cash on hand. (3-31-10)

• 25% EBITDA

Fusepoint – - Managed Hosting – Cloud entrant - Toronto- $47.5 million Annual Revenues – - 50% managed servers, 30% Colo, 20% App Services- 25% EBITDA

Tom Millitzer, President - NCC

…Savvis / Fusepoint --- the deal

Signal Hill - Represented Fusepoint

• $124.5 M Cash transaction• $47.5 M Annual

Revenues• 2.62 X Annual Revenues• 10.4 X EBITDA

Tom Millitzer, President - NCC

……what Savvis acquired…

- Savvis has a large vertical Financial market sector, lucrative…

- Fusepoint – right place – great reputation – right time.

- Wanted immediate Canada expansion…Toronto financial hub.

- Savvis not sure what to do w/ SaaS

- Savvis stated: “near” immediate $8 million reduction in costs – REALLY 6-7 EBITDA? (vs 10.4)

Tom Millitzer, President - NCC

• (NYSE:CBB

• $525 million cash transaction• Data Center deal – • 12.5X EBITDA • 9X rev • 163,000 sq ft of datacenter @ $3220 per sq ft.

• (NYSE:CBB

• $525 million cash transaction• Data Center deal – • 12.5X EBITDA • 9X rev • 163,000 sq ft of datacenter @ $3220 per sq ft.

Jan 2008--Cincinnati Bell acquired GramTel USA, a disaster recovery,, data backup and co-location services. in a transaction valued at approximately $20 million. Est – 3.5X annual revenues.

Acquires CyrusOne

Tom Millitzer, President - NCC

And just to note…the market shift…

Tom Millitzer, President - NCC

....the Cloud today –

The Cloud will create what I term…..

Tom Millitzer, President - NCC

…Inverted Synergy Paradigm

Tom Millitzer, President - NCC

…. Inverted Synergy Paradigm WHERE...

• Synergy improves my Base EBITDA

• The acquisition dramatically improves my base business.

• My business experiences a true paradigm shift.

Tom Millitzer, President - NCC

… U Reduce OUR Costs

… WE Build On YOUR Efficiencies

… WE Reconfigure OUR Assets

…WHERE

Tom Millitzer, President - NCC

Where is that 4 year Payback now?

Tom Millitzer, President - NCC

- Growth like this equals =

Great Valuations......

Tom Millitzer, President - NCC

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Tom Millitzer, President - NCC

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