Deutsche Telekom and United Internet are preparing rival bids for German web hosting provider Host Europe Group (HEG) ahead of an Oct. 10 deadline for non-binding offers, sources involved in the process told Reuters.
HEG, one of Europe's largest independent web hosting firms, was put up for sale by private equity firm Cinven before the summer but the process was put on ice due to market volatility resulting from Britain's vote to leave the EU.
Cinven has now resumed efforts to sell the web hosting firm, which is valued at about 1.5 billion euros ($1.7 billion), the sources said. It wants to receive indicative offers next week, and is hoping to sign a deal before Christmas, they said.
Deutsche Telekom has teamed up with U.S. private equity fund Hellman & Friedman while United Internet is working on a bid with U.S. buyout fund Warburg Pincus, the sources said.
Some buyout funds including Providence, Permira, and EQT may also decide to enter the bidding, the sources said.
Cinven, Deutsche Telekom, United Internet, GoDaddy, Warburg Pincus, Providence, EQT, and Permira declined to comment.
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Bidders are expected to value HEG at about 10 or 11 times its core earnings of 140 million euros, the sources said, giving it a valuation of about 1.5 billion euros ($1.7 billion), including debt.
The business generates the bulk of its revenues from its mass-market hosting services, one of the sources said, adding that some of the bidders are less interested in its other unit, known as "managed hosting," and would value this at a much lower multiple.
Deutsche Telekom plans to use its own web hosting subsidiary Strato as a platform to launch a bid for HEG, the sources said. Hellman & Friedman will retain a majority stake in the event of a successful bid, and Strato will act as a minority investor, one of the sources said.
United Internet, instead, wants to have a controlling stake in HEG while its partner Warburg Pincus will be granted a minority stake, the source said.
HEG manages websites and software in the cloud and supplies domain name registration to business clients. It was founded nearly two decades ago in Germany and has changed owners several times since then.
Its peers in the mass market segment include U.S. rival Endurance—partly backed by Warburg Pincus—as well as GoDaddy. Application hosts range from Silicon Valley's Rackspace up to industry giant Amazon Web Services.