Industry Description
The data processing & hosting services industry comprises providers that delivers specialized information management services such as transforming client data into reports and offering hosting infrastructure for websites and applications (NAICS 51821). The industry also includes automated data entry and data processing services.
The following are some basic characteristics of the data processing & hosting services industry:
- Data processing & hosting services industry has a combined revenue of $162.2 billion, with a growth rate of 2.2% in 2019-2024
- There are approximately 57,600 businesses as of 2019
- The data processing & hosting services industry employs approximately 482,100 people
Industry Trends
The data processing & hosting services industry is highly fragmented and has low levels of market share concentration, with the top four industry operators comprising approximately 31% of industry revenue in 2019. The largest players have numerous locations across the US, while small players are typically independently owned and operated in 1-2 states. Some key external factors that influence this industry are (i) mobile users, (ii) financial health of companies, and (iii) internet of things. Each of these is described in further detail below.
Industry demand is proportional to the amount of mobile users. At the end of 2024 there were over 310 million smartphone users in the U.S., and it is expected to reach over 320 million smartphone users by the end of the decade. As a result, industry operators are optimizing their services to attain fast load time and reliable connectivity. This increase has also created the need for scalable hosting services and more adaptable data processing solutions to avoid inconveniences that arise from many users.
In healthy business environments where companies are amassing profits their data solutions are at their best. This is because when companies have the financial means they update to the latest technology and software to maintain efficiency. At the end of 2023 U.S. companies recorded a +6.9% profit, reflecting a healthy financial status. As a result, enhanced data solutions were sought for reasons such as maintaining client lists and analyzing purchase trends.
The internet of things generates large amounts of data that need to be hosted and stored. At the end of 2023 there were 16.6 billion devices and it is expected to reach over 40 billion devices by the end of 2030. These devices generate massive amounts of data and require sophisticated solutions to be hosted and stored. The growth also creates industry demands for services that are able to handle all the real-time data streams.
The data processing & hosting services industry in the U.S. has been influenced by external factors such as mobile users, financial health of companies, and internet of things. The industry is likely to grow, but to remain and experience the industry growth requires scalability to handle the increased volumes from mobile devices and sophisticated solutions for devices. Leveraging healthy business environments where companies are upgrading their technologies will position industry operators to capture the benefits of the industry growth.
Key Performance Metrics
In evaluating the data processing & hosting services industry, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions.
- Data throughput
- Latency
- Packet loss
- Power usage effectiveness
- Server utilization rate
- Uptime
Industry Organizations & Publications
The following organizations publish useful information:
- Association for Computer Operations Management (AFCOM)
- Data Center Coalition (DCC)
- i2Coalition (Internet Infrastructure Coalition)
- Uptime Institute
Guideline Information: Private Purchase Transactions
Most data processing & hosting services companies are privately owned. While there are publicly traded companies, data regarding the sale of 100% of closely held data processing & hosting services companies is generally the best source of information to appraise a subject company.
The following are typical appraisal multiples from sale of data processing & hosting services companies:
- Revenue multiples between 0.5 and 15.8 times
- Gross Profit multiples between 0.8 and 17.5 times
- EBITDA multiples between 6.3 and 36.2 times
In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.
Guideline Information: Publicly Traded Companies
Most data processing & hosting services companies are privately owned; however, there are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company.
The four largest publicly traded U.S. data processing & hosting services companies ranked by market capitalization are:
- Automatic Data Processing, Inc. (ADP) – $122.3 billion market capitalization
- Fiserv, Inc. (FI) – $121.3 billion market capitalization
- Verisk Analytics, Inc. (VRSK) – $40.3 billion market capitalization
- Broadridge Financial Solutions, Inc. (BR) – $28.0 billion market capitalization
The Price-to-Earnings (P/E) ratios of these four companies range between 32.1 times and 44.5 times.
Appraisal Rules of Thumb
Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.
Data processing & hosting services companies are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.