Contact: Scott Denne Liam Eagle
Hostway’s sale to private equity firm Littlejohn & Co. comes in the middle of the company’s transition from traditional shared hosting toward cloud and managed services. That transition, which began in 2010, makes it a good match for Littlejohn, which has little experience in tech, but plenty in complex situations like this one.
Though terms of the deal were not disclosed, we hear Littlejohn paid roughly 7x EBITDA for Chicago-based Hostway (subscribers to The 451 M&A KnowledgeBase can see our full valuation estimate, including price, here ). That’s just under the median 8x that hosting and managed service providers have fetched this year, according to our database. The lower multiple reflects the challenges that remain for Hostway: it doesn’t have the scale of larger cloud or managed service vendors, nor does it have the high-touch services of larger hosting suppliers, and customers are increasingly opting for one or the other.
With Littlejohn’s fresh capital, Hostway can start growing the business again. While it has exceeded $100m in annual revenue (relatively rarified air in the hosting business), it dipped below that mark in the past several years as it backed off some of its international efforts. That, mixed with some customer attrition, has caused revenue to drop to about $60m in the trailing 12 months. Cowen and Co. served as financial adviser to Littlejohn, while DH Capital banked Hostway.
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