An overview of an Internet service provider offered for sale. Includes the price, how the business was valued, the outlook of future sales, and the pros and cons of the purchase.
Business for Sale
The Business: Hey, all you AOL wanna-bes, here's a deal worth logging on to: an upstart Internet service provider (ISP) with two strong selling points--a key location near two major cities and a customer niche with great potential, serving 250 small commercial clients. Just over two years old, this ISP has reinvested most of its profits in building an infrastructure that could easily handle twice as much sales volume; with little local competition, it's also branched into profitable service enhancements, such as designing and hosting Web pages for specialized industries. Buy in and you get about $40,000 worth of equipment, including 50 modems, six ISDN routers, three servers of various capacities, and a heavy-duty T-1 access line. The current owner acquired this company as part of a larger deal; he's ready to sign off but expects the small staff to stay.
Price: $210,000 (with 36-month financing available on a $100,000 down payment)
Outlook: ISPs, especially those with more than 3,000 subscribers or a commercial-customer focus, offer some of the hottest consolidation plays around these days. Although it has only 250 customers, this company's potential still looks good, given the vibrancy of its local business base and its relatively low cost of boosting capacity. (Another $40,000 for infrastructure improvement could raise sales potential 3.5 to 4 times.) Don't be misled by this provider's spotty revenue history: it lost business when its own access provider experienced major glitches (a no-no for a young company that competes against big-name providers on quality, quality, quality). But a costly switch of T-1 service providers and the addition of new quality controls seem to have ended this company's electronic bloodbath. Meanwhile, a recent reduction in the business's sale price should attract suitors faster than you can, well, read all your E-mail.
Price Rationale: Most ISPs are too young to be profitable and too desirable (as consolidation plays) to be priced rationally. So start with the roughest rule of thumb: by adding three months' worth of gross revenues to the value of hardware, software, and equipment. Provided that you buy this company's line that the T-1 switch has reversed sales losses, it makes sense to rely on the average monthly gross revenues from 1996 and 1997: $16,532. Multiply it by three, add in that $40,000 worth of equipment, and you get a starting price of around $89,596. Is this seller crazy? Not really, since ISPs with a large customer base or a commercial-customer focus can go for much, much more if consolidators are hot to trot.
Pros: You'll have only yourself to blame the next time you can't get on-line.
Cons: In ISPs, Goliath is likely to stomp out David. So be prepared to grow quickly or perish. --Jill Andresky Fraser
*Before interest, taxes, depreciation, and owner's compensation.
Inc. has no stake in the sale of the business featured.The magazine cannot confirm the accuracy of financial or other information offered by the seller. Inquiries should be directed to Marc Dosik of VR Business Brokers, at 410-772-0006.