1. May 19-20 l Washington, DC l Omni Shoreham Valuation in the Hosting Business Paul Stapleton Managing Director, DH Capital, LLC

2. Parallels Summit 2008 2 Who is DH Capital? What is Hosting? Mass Market Hosting (MMH) Enterprise Hosting (MSP) Valuation Methods Public Companies Mergers and Acquisitions Replacement Costs Discounted Cash Flow Analysis Earnings Power Churn Agenda

3. Parallels Summit 2008 3 Improving Valuations Tracking ROI Channel Management New Products (I.e. growth) Use Acronym du jour Agenda

4. Parallels Summit 2008 4 Sole lead advisor in 64 transactions totaling over $1.9 billion Closed 40 M&A transactions totaling approximately $1.4 billion Arranged more than $474 million in 25 private placements Strong relationships with strategic operators as well as private equity funds and financial institutions that support them We have made lots of mistakes (e.g. Misuse of Discounted Cash Flows) DH Capital: Proven Expertise

5. Parallels Summit 2008 5 For this discussion - Divided into Mass Market Hosting and Enterprise Hosting MMH Products with low price points Highly Automated Large Call Centers Enterprise Hosting Products with high price points Capital Intensive Direct Sales Force Other Hosters - e.g. eCommerce, SAAS, Social Nets What is Hosting?

6. Parallels Summit 2008 6 Hosting is one of the best business models in the Telecom / Data-com ecosystem: A recurring revenue business model A “valuable network”, i.e. a network that stores/handles “valuable” information  Such as bank accounts, family photos, and web hosts The result is low churn and effective pricing driven by perceived value not costs ROI drivers in hosting are well aligned:  Subscriber acquisition costs, margin, churn Extraordinary operating leverage after covering fixed costs DH Capital Hosting Message

7. Parallels Summit 2008 7 PUBLIC COMPANY ANALYSIS

8. Parallels Summit 2008 8 MSP Public Comps Summary

9. Parallels Summit 2008 9 MSP Public Comps Summary (cont’d)

10. Parallels Summit 2008 10 MSP Public Comps Summary (cont’d)

11. Parallels Summit 2008 11 MSP Public Comps Summary (cont’d)

12. Parallels Summit 2008 12 MMH Public Comps Summary

13. Parallels Summit 2008 13 MMH Public Comps Summary (cont’d)

14. Parallels Summit 2008 14 MMH Public Comps Summary (cont’d)

15. Parallels Summit 2008 15 MMH Public Comps Summary (cont’d)

16. Parallels Summit 2008 16 MERGERS & ACQUISITIONS

17. Parallels Summit 2008 17 MSP Deal Flow

18. Parallels Summit 2008 18 MSP Deal Multiples 2005-2008

19. Parallels Summit 2008 19 MMH Deal Flow

20. Parallels Summit 2008 20 MMH Deal Multiples 2005-2008

21. Parallels Summit 2008 21 Balance Sheet is a Good Place to Start FMV of Facilities High for Enterprise Hosting Low for MMH Start-Up Loses High for Enterprise Hosting Low for MMH Typically no Intellectual Property in Hosting Not a Good Tool Will we use it again? E.g. Collocation Overbuild? Replacement Costs

22. Parallels Summit 2008 22 View modified in the early 2000s Problems with terminal value Earnings Power of the Business Bruce Greenwald - Value Investing Churn, Margin, Cost of Acquisition Cost of Acquisition = PV Margin = PMT Churn = 1 / n Solve for ROI What about FV? What about g? Discounted Cash Flow Value Analysis

23. Parallels Summit 2008 23 Churn, Margin, Cost of Acquisition Cost of Acquisition = PV Margin = PMT Churn = 1 / n Solve for ROI What about FV? What about g? For Example Assumptions PV = $100 PMT = $5 / mos. Churn = 3.0% 33 months ROI = 39% / yr. 3.3% / mos.

24. Parallels Summit 2008 24 Track Churn and Acquisition Costs Understand the Customer Channel New Products up and down stack Improve post-deal integration (virtualization helps?) Know your Sustainable Earnings Power (ROI) Wait Read RAX S-1 Change your Name Buy EMC / Short VMW Improving Hosting Values

25. Parallels Summit 2008 25 Questions Paul Stapleton Managing Director, DH Capital 212-774-3729

26. Parallels Summit 2008 26 2008 N. American MMH Deals

27. Parallels Summit 2008 27 2007 N. American MMH Deals

28. Parallels Summit 2008 28 2007 N. American MMH Deals (cont’d)

29. Parallels Summit 2008 29 Major Bullet Point (Arial 24 Bold, Title Caps) –Minor Bullet Point (Arial 20 Non-Bold, Title Caps) ▪Next Level (Arial 16 Non-Bold, Title Caps) –Next Level (Arial 14 Non-Bold, Title Caps) MSP Stock Prices

30. Parallels Summit 2008 30 How MSP Revenue Fared Since 2002

31. Parallels Summit 2008 31 How MSP EBITDA Fared Since 2002

32. Parallels Summit 2008 32 MMH Stock Prices over last 12 months

33. Parallels Summit 2008 33 How MMH EBITDA Fared Since 2004

34. Parallels Summit 2008 34 How MMH Revenue Fared Since 2004

35. Parallels Summit 2008 35 2008 N. American MSP Deals

36. Parallels Summit 2008 36 2007 N. American MSP Deals

37. Parallels Summit 2008 37 2007 N. American MSP Deals (cont’d)

38. Parallels Summit 2008 38 Return on Equity –Cost of acquisition –Margin –Churn Churn