|
ISPs seem to spend a lot of their time plotting exit strategies and asking What's my company worth in today's market? Here are some simple?and not-so-simple?answers.
[June 9, 1999]
In a thread on ISP-CLEC in May of 1999, BS asked:
"What would be a normal valuation for an ISP with these numbers: In 1997 an ISP business (founded in 1996) that was profitable with monthly revenue of $3 million. It had 10,000 local access lines and regulatory co-carrier authorizations from five states with six others pending."
[LL wrote] "$500 per subscriber is the going rate."
[BCR wrote] "We are a professional M & A firm, and, we typically use three methods:
- Discounted cash flow
- Multiple of EBDITA
- Multiple of revenue.
We will not use revenue multiples unless a company has positive cash flow or it has a consumer base larger than 500,000.
Typical valuations have factored in all three of these variables using multiples of 7 x EBDITA, 2 x revenue, or projected cash-flow discounted 30 percent per year for early-stage companies with impressive initial growth."
[DM wrote] "Valuation grows exponentially with the number of subscribers. This is why many have attempted to aggregate multiple small ISPs into larger entities."
[MC wrote] "The most recent valuation models I've seen use multiples of revenues (latest three months annualized) according to number and type of subscriber."
- Size
- "major" isps have > 10k subs
- 2nd tier have between 5k and 10k
- 3rd tier have between 1k and 5k
- Type
- Dial-up
- major (1.8 - 2.3 times revenue)
- 2nd tier (1.1x -1.3x)
- 3rd tier (0.6x - 0.9x)
- Dedicated access
- major (2.0x - 2.3x)
- 2nd (1.5x - 1.8x)
- 3rd (0.9x - 1.5x)
- Web hosting
- major (5.0x - 8.5x)
- 2nd (3.5x - 5.0x)
- 3rd (1.1x - 1.5x)
"Hence a reason to aggregate and arbitrage up."
[NR wrote] "Our company is a small ISP located in PA. We recently received offers between $450 and $700 per subscriber. Many companies are offering a deal that's part cash and part stock. You don't receive your cash until the IPO, and then you have to hold their stock for a term such as 6 months or a year.
Anyone have any thoughts on the stock portion of these deals? I forgot to mention that all of your liabilities must be paid in full too."
[RY wrote] "Publicly traded ISPs are valued anywhere between $2,000 and $3,000 per subscriber. $500 looks too cheap, leaving an opening for some enterprising someone to arbitrage the difference by buying your ISP along with others at from $30 to 500/head and roll them up into a public company which the market then values at $2500/head.
You do all the HARD work building from $0 to $500, then someone else does the easy part of going from $500 to $2500 in the six months it takes to bring out an IPO."
[CJS wrote] "I believe that $500 per subscriber is a very attractive price for a "small" ISP. Your assumption?that doing an IPO is the easy part?is simply not correct. Taking a company public is a lot of work and expense. Also, it is risky. If you don't have a credible management team in place, you won't get a premium in the marketplace. The credible management team will be expensive.
If you are taking half of your money in stock and the IPO is successful, you can participate in the premium price. The opening is there and people are taking advantage of it. But it does take effort to make it successful. Look at the other side, if the markets were not giving premiums your subscribers would be only worth $30 to $65, or the cost to acquire."
|
