Best of the ISP-Lists

Valuation 101

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:

1. Discounted cash flow
2. Multiple of EBDITA
3. Multiple of revenue.

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."

The thread then morphed into a discussion of valuations of publicly traded ISPs.

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