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DigitalOcean to Acquire Cloudways for $350 Million
raindog308
Administrator, Veteran
https://www.marketwatch.com/story/digitalocean-to-buy-cloudways-for-350-million-271661257289
"DigitalOcean Holdings Inc. said it has agreed to buy Cloudways, a cloud-hosting and software-as-a-service provider, in an all-cash deal valued at $350 million.
DigitalOcean said the deal would expand its serviceable market and increase options for digital agencies, e-commerce sites, bloggers, freelance developers and builders hosting on WordPress, PHP and Magento.
Cloudways currently relies on DigitalOcean infrastructure to power about half of its customers, and the two companies have partnered closely since 2014, they said. The deal would also increase DigitalOcean's employee base by 30%.
Under the terms of the deal, expected to close in September, DigitalOcean will pay a significant portion of the funds over a 30-month period following the closing."
Comments
30 invoices :-)
I recall Cloudways has a representative here- wishing them and their team the best for the road ahead.
@FatGrizzly to your message below...
the entire message should read
"We're joining the team at DigitalOcean.... rest assured, nothing changes for you, in fact change, if any, will be for the better."
Looking forward to increase in pricing.
A business model where you rent VMs for $6, stick your own panel in front of them, and sell them for $12. Why didn't I think of that?
https://www.cloudways.com/en/pricing.php?ref_id=web_navbar#linode
and that actually boomed pretty good.
Wishing the best for Cloudways team, hoping to see the usual phrase, "We're joining the team at DigitalOcean."
And then prices will go up.
Coz you were busy writing articles & taking interviews for LEB -_-
It's been around for a while. I think some people criticized them for adding a dollar overhead. I don't know the full ins-and-outs of their platform but having the ability to be platform-neutral (which it seems Cloudways offers a way to do that) seems like a great idea.
Kind of related/probably not the same though: https://libcloud.apache.org/
The main thing about cloudways is its excellent managed support, they do everything for you without any intervention needed. You can also get cloudflare enterprise for 4.95 per month, they partnered with cloudflare to offer it.
Now that's value add
I think this is an interesting acquisition.
DO has 786 employees, and does about $550m revenue per year (being optimistic about their TTM). So $700K per employee.
What was Cloudways revenue? We don't know. DO bought them for $350m. These tech deals are always ridiculous so maybe 10x revenue. Who knows - DO could have paid 50x.
DO says this will add 30% of staff, so figure 235 people. If revenue is $35m/year, that's $148K/year in revenue per person.
So either DO's margins are going to drop or they're going to modify this offering.
Also, when you suddenly grow your company by 30%, whatever culture you have is rebooted. In DO's case, their woke-toxic world probably will benefit. Big companies that buy smaller acquisitions can integrate them culturally very easily because the existing culture is so mammoth. With smaller firms, it's always a bit of chaos. The Cloudways acquisition is going to consume DO management's attention for the near term.
Excellent analysis.
It’s about time. The big risk (from any perspective) was always that they would slowly move away, and you see that they have by all of the other clouds they support. If you have a big customer like that, acquisition is as much about protection of existing revenue as anything else. Bring those other users back into the fold over time, get back the lost revenue. That in itself will increase the profit of Cloudways by pulling back from paying sticker price at other clouds. In turn, server overhead will drop down to the cost to provide the server space already owned, so no need to increase prices.
Cloudways is based out of Malta and hires out of Pakistan, DO might want to move some of it's labor pool and Cloudways might have a good structure to do it with.
You make a good observation there. But how about a different approach to the valuation assessment. We know tech company valuation can be valuated in various different ways (I'm sure @jbiloh can comment a bit more in detail) but many tech companies that are early in their phase (I'd put Cloudways in this category) are valued based on their potential future growth. Basically, in their company maturity level I think they're in the growth and client acquisition phase over profitability phase.
I think this acquisition was a play by DO to focus on market share/ownership rather than actual profitability as a solution like Cloudways is focused on preventing someone from being locked-in to a single vendor (of which DO has to compete in). I don't know exactly what DO plans on doing with Cloudways, but I think by buying Cloudways, DO is going to integrate Cloudways value-add-at-scale to DO's offerings and start locking their solutions in.
The ability to pick and choose across Vultr, Linode, DO, AWS, etc will be phased out. It's a win-win for DO because they buy market share and also added-on value tech to their services. DO saw where Cloudways was going and decided to buy them to steer it towards DO's own growth.
Yup. Gaditek is the name of the Pakstani software house.
On the hand, It is definitely a big news for us. It's being considered as an achievement over here.
Wow, that's a lot of $$$. The only experience I've had with Cloudways was the amount of forum spam posted on my forums hiding Cloudway links in text and disguised comments LOL.
It will be interesting to see how they handle that. Wonder how many Cloudways customers are set in their ways to have hosting on a non-DO cloud provider right now and would move away if Cloudways removed the other non-DO cloud provider options.
A competing service would be easy for them to have created, but perhaps they felt it wouldn't gain traction. Still, between
Hiring a few sysadmins, spending a few grand to stand up something your devs can do in their sleep, and some marketing bucks to advertise it to your captive userbase and the general public, or
Spend $350m
...either the cost of #1 is a helluva lot more than I'm thinking, or knocking out this competitor was worth $345m+. Or DO is run by idiots. Or some combination thereof.
If DO fears being bought itself (and management, the premium placed on growth may also play a role.
I'll bet a really nice steak that DO's full intention was to be bought out, but no one bit. Them going public was their way for investors to start getting some cash out.
Francisco
I think it was just easier for DO to buy Cloudways. It was guaranteed customer acquisition and increasing their core product's value-add versus investing in spinning a new offering and the uncertainty associated with it's success. Basically, you're paying 350 million but it's guaranteed you're buying clients and a proven model instead of trying to build your own version of the sauce and experimenting.
Like what @Francisco mentioned, I do think DO was planning on being acquired by a bigger company (maybe another cloud services company?), but ended up IPOing after they got pressure from their investors to finally cash out a bit. I don't really see DO being a "stupid money making" company. I mean they're between high-end cloud services and low-end cloud services, they gotta play with the delta. They're making money but I don't think they'll be making "stupid money" like many unicorn investors were hoping they'd make.
It's now just another cloud services company.
Not happening with 768 staffers...
Francisco
Didn't DO just laid off a bunch of people?
I don’t know? Didn’t hear that if so.
Francisco
I don't think so...at least, I can't find anything on Google, SA, etc.
Acquisition to show future growth and justify year end bonuses for management. Old trick in the 📕 when economic headwinds blow and stock is down two thirds.
Or Quite possibly a defensive ploy : post approval, a 350 mn dollars “IOU” makes them more expensive for a predator, or gives better seat on bargaining table.
https://www.fool.com/quote/nyse/docn/
They will, post merger approval. Atleast 50 if my numbers work out.
DO current headcount 773 (as per fool.com, Aug 2022)
CW current HC: 280 (as of July 2022)
DO announcement says CW will be
30 percent of 773 is about 230,
So 50 CW or DO and CW combined adjust for redundancy, most likely in DO support and non tech roles ??
source
They've already got plenty of IOUs.
They can do all the business they want, but most LET providers have a higher net income than DO.
Granted, that market cap is nice...
.
Indeed but the iou doubles the delta between cash and total debt.
Pre acquisition:
1.47 Bn- 1.17 Bn= 300 mn
Post acquisition:
300 mn (pre) + 300 mn (approx., post) *
Enterprise value goes up by 300 mn to 4.67 Bn i.e a more expensive price tag
*Considering 350 mn acquisition cost to be paid over 30 months, discounted for present value. I believe 10 percent is a conservative number for cost of capital?
I will stop here for now, not the forum for financial jugglery.
Gosh, YOU were the predator DO is defending against!
:-) Best rgds