(Adds background on GoDaddy, HostEurope and bidders)
By Claire Ruckin
LONDON, Nov 24 (Reuters) - U.S. website domain name provider GoDaddy is in exclusive talks to buy peer Host Europe Group (HEG) as it seeks to expand in higher-margin businesses beyond the initial set-up of websites, people close to the matter said.
Arizona-based GoDaddy, the world's largest website address registrar, has branched into hosting websites itself for small businesses and consumers.
Founded in 1997, the company became well-known in the United States for its sometimes outrageous TV marketing campaigns with celebrities or during the Super Bowl and other sporting events.
A purchase of HEG would help GoDaddy accelerate its shift into the more profitable web hosting business as well as broaden its customer base in Europe.
HEG, which serves mainly small and medium-sized businesses, is one of Europe's largest independent web hosting firms and could be valued at about 1.7 billion euros ($1.8 billion), or over 12 times its forecast 2016 core earnings of 140 million euros, people familiar with the matter have said previously.
In 2015, HEG posted like-for-like adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of 114 million euros on sales of 280 million.
In 2017, Deutsche Bank estimates GoDaddy can generate nearly $1 billion in revenue from domains, $750 million from hosting and another $325 million from selling applications to help customers run businesses on the sites set up through GoDaddy.
The U.S.-based company, backed by private equity firms KKR and Silver Lake, trumped rival bids from German Internet service provider United Internet, which had teamed up with private equity firm Warburg Pincus, and a third bid by buyout firm Centerbridge, the sources said.
Deutsche Telekom this month withdrew from the bidding process, as did Permira, which teamed with Interoute, part-owned by investor Aleph Capital.
Cinven, GoDaddy and KKR declined to comment. Silver Lake and HEG were not immediately available to comment.
Cinven bought HEG in 2013 for 438 million pounds and expanded the business with acquisitions.
Banks, expected to include Barclays, Citigroup, Deutsche Bank, Morgan Stanley and RBC, are lining up debt financing to back a potential deal between the two parties, totalling around 1.5 billion euros, or 4.5 times combined EBITDA, the sources said.
If a deal is struck, the financing could be launched before the year end. A financing of this size would be welcomed by Europe's very liquid leveraged loan market, which has been eager for new paper and event-driven deals as demand has far outweighed supply so far this year.
$1 = 0.9454 euros Additional reporting by Arno Schuetze and Eric Auchard in Frankfurt; Editing by Christopher Mangham and Mark Potter