Case studies Technology

Contabo: transforming a small regional webhosting business into an SME leader

Oakley Capital

16.02.23

3 min read

Contabo is a leading cloud hosting platform providing an unrivalled price-to-performance ratio in the market.

About the business

Within the hosting sector, the business operates in an attractive and sustainable niche and has a loyal, tech-savvy, global customer base of SMEs, developers, entrepreneurs and gamers.

When Oakley first invested in 2019 alongside proven hosting entrepreneurs Thomas Strohe, Jochen Berger and Thomas Vollrath, Contabo was an undermanaged small regional business with a solid product. In 2022, we exited a business that had been transformed into a global leader with over a quarter of a million customers. Oakley reinvested alongside KKR to take advantage of Contabo’s future growth prospects.

Key facts

Data centres

+250k

Customers

Continents

Deal dynamics

Track record

Oakley invested in the business in 2019 alongside its entrepreneur partners following a near decade-long track record collaborating with them on building web hosting businesses. This began with Intergenia in 2011 (2.5x MM); Plesk, which became WebPros (6.7x MM); and then Contabo.

Oakley network

Our investment demonstrated the power of the Oakley network and origination strategy, focused on repeat partnerships and repeatable playbooks across niche sectors where the firm has built unique expertise.

Unlocking complex situations

It also demonstrated our ability to unlock complex situations. Contabo’s founders were looking to step down, requiring a succession plan. A previous sales process had broken down. This was clearly a difficult deal with high execution risk.

An attractive market

Web hosting services provide outsourced and flexible server space to customers. Oakley and its partners were attracted to a market that has consistently shown very strong and resilient growth in recent years, driven by structural trends and market dynamics, including increasing data traffic as well as the increasing usage of cloud applications.
Contabo plays in a global “SME Cloud” market, a particularly attractive segment that has been experiencing impressive growth driven by the increasing digitalization of small businesses as well as the potential to cater to smaller businesses left behind by the larger, more expensive hyperscaler platforms
In a fragmented market, we saw the opportunity to pursue a buy-and-build strategy, leveraging Oakley and our partners’ deep expertise in cloud and web hosting and our strong track record in identifying M&A targets, executing transactions and integrating new businesses

There’s a lot of mutual trust, a lot of relevant sector experience and an appreciation of Oakley’s entrepreneurial culture and ethos. We have also appreciated the support of Oakley’s growing operating platform, including their Sustainability team, which has helped us create an ESG framework and action plan to reduce our emissions and set us up for continual ESG improvements as we grow.

Thomas Noglik

CEO — Contabo

Value creation

During Oakley’s three-year collaboration, Contabo has grown from being a small, relatively unknown German player to a leading global SME hosting provider.

Leveraging the Firm’s and our entrepreneur partners’ combined experience in cloud hosting and track record in transforming businesses, together we pursued a growth strategy that focused on professionalisation, on strategic M&A and on talent acquisition.

We significantly enhanced the business, building professional reporting, tax and legal infrastructure, providing a well-invested platform to support fast growth
Benefitting from our entrepreneur partners’ rich pipeline and networks, we pursued strategic M&A to add geographic reach and scale, as well as entry into new verticals including gaming. In 2020, Czech hosting business VSHosting was acquired to expand Contabo’s international footprint. This was followed by the acquisition of G-Portal in 2021, a rapidly growing ‘platform-as-a-service’ provider in the gaming space, just as demand for online gaming was growing exponentially during the Covid pandemic.
We speedily built an entire C-suite team to drive Contabo’s growth, leveraging our network and our co-investors to recruit senior management, including a new CEO and CFO.
We were careful not to over leverage the business, with modest leverage at entry of 3.8x. Strong cash generation enabled significant deleveraging and offered the opportunity of refinancing the business after two years.

Contabo has generated strong revenue and EBITDA growth (58% and 63% CAGR respectively) far exceeding our investment case.

What's next for Contabo?

Reinvestment

Our reinvestment in Contabo provides the opportunity to benefit from the anticipated future growth of the business

Target market

Contabo’s target market segment continues to grow at double digit rates, driven by the still significant white space in SME digitalisation

Partnership with KKR

In partnership with KKR, the next stage of Contabo’s development consists of establishing it as a global champion in the SME cloud hosting market. This will be achieved via continued organic growth, international expansion as well as transformative M&A.