FRANKFURT, April 27 (Reuters) - Buyout group Cinven is launching the sale of HEG, a top European supplier of web hosting services to small and medium-sized businesses, in a potential 1.7 billion euro ($1.9 billion) deal, people familiar with the transaction said.
HEG, or Host Europe Group, manages websites and software in the cloud and supplies domain name registration to business clients around the region. It was founded nearly two decades ago in Germany and has changed owners several times since then.
Its closest peers in the highly fragmented business web hosting market include Germany’s United Internet and U.S.-based GoDaddy, Endurance, and Web.com .
Cinven, which bought the company in 2013 for 438 million pounds ($639 million), has since strengthened the group with a slew of acquisitions, among other those of peers Telefonica Germany Online Services, domainfactory and intergenia.
Private equity groups such as Hellman & Friedman, Permira, KKR, Silver Lake or Warburg Pincus are expected to express interest in the asset, while United Internet is seen as an unlikely buyer, the sources said.
KKR and Silver Lake own stakes in GoDaddy, while Warburg Pincus holds a stake in rival Endurance. Both companies also have been serial acquirers of web hosting businesses.
Cinven, which is working with Deutsche Bank on the transaction, is expected to send out information packages on the asset to potential bidders in summer, the sources added.
HEG is expected to post core profits, or earnings before interest, taxes, depreciation and amortisation (EBITDA), of about 140 million euros this year, the people said adding bidders may value HEG at 12-13 times that, including debt.
“A key question for prospective bidders will be whether they believe that HEG can stick to double-digit growth rates in coming years,” one of the people said.
If offers fall short of Cinven’s expectations, the buyout group will keep the asset, another person said.
Cinven, Deutsche Bank and the potential bidders declined to comment or were not immediately available for comment. ($1 = 0.8835 euros) ($1 = 0.6858 pounds) (Reporting by Arno Schuetze; Additional reporting by Eric Auchard and Alexander Hübner; Editing by Maria Sheahan)