Mergers and Acquisitions - The Current MO

"Mergers and Acquisitions - The Current MO

Stocks are yo-yoing, jobless rates are still climbing, and the word ""recession"" is getting thrown around more than a ball at a Beach Boys' concert. Despite the spurts of hard times in the technology industry, it remains imperative for companies to plan for the future; and judging from recent news, the future is now.

HostIndex.com has spoken to several people in the know who have said the amalgamation of hosting companies will be the norm; in order to survive, hosting companies will need to pair up or be left alone to suffer for example one that has succeeded is http://www.weblinkhosting.com.

Software, professional services and managed service provider, divine inc. announced it will acquire Data Return, a leading managed hosting services provider. The stock-for-stock deal is valued at about $33 million dollars. Chicago, IL-based divine said the deal means it will achieve profitability by the second quarter of 2002.

And that's just one of the examples.

Express Technology, which already operates two hosting brands, announced it had purchased ""certain assets of Digital Chainsaw"", and will be bringing the company and its 6000 customers into the Express Technology family. Express currently parents HalfPriceHosting, a Windows-only hosting company, as well as CFXHosting, which deals strictly with those wishing to use ColdFusion applications.

In these tough economic times, companies can be purchased for bargain prices compared to the inflated markets of yesteryear. For hosting companies looking to expand into markets they currently do not serve, acquisitions are a very viable alternative to starting from scratch.

In late October, Interland announced it had acquired the small business-focused shared and unmanaged dedicated retail Web hosting business of Interliant. Though the terms of the deal were never disclosed, it does solidify the onward-focus that while today, hosting companies seem to be a dime a dozen, tomorrow, they could be pairing up in an effort to stay alive, and profitable. In 2002, Interland also picked up several more companies including CommuniTech.Net and Dialtone Internet.

""On October 29, Interland announced that we would acquire the small-business focused shared and unmanaged dedicated customer accounts of Interliant, Inc.,"" Joel J. Kocher, Interland's chairman and CEO, said.

""The transaction includes only the purchase of accounts and does not include the purchase of data center infrastructure. This is a critical point. I'll explain why.

The Web hosting industry currently is undergoing a major shakeout and consolidation. This can be attributed to the unnatural level of capital infusion during the Internet boom, which resulted in too many players and an overcapacity of infrastructure and data center space. Many Web hosts now are saddled with debt at a time when funds are no longer flowing from the capital markets.

Now, Interland is seizing this opportunity. We have an efficiency-driven business plan and we can leverage our strong cash position to acquire customer accounts as other players exit the business. And, by acquiring only customer accounts and the associated revenue, we can more rapidly achieve the scale and operating efficiencies needed to accelerate our drive to cash flow profitability. The acquisition should be immediately accretive to our gross margins as we quickly integrate these customers into our existing operations."""