By Arno Schuetze
FRANKFURT (Reuters) - Buyout group Cinven is launching the sale of HEG, a European supplier of web hosting services mainly to small and medium-sized businesses, in a potential deal worth up to 1.7 billion euro ($1.9 billion), 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.
Host Europe develops and runs websites for small and medium business, and provides cloud hosting, where companies pay it to manage their applications as a Web service for employees and customers.
Peers in the mass market segment include Germany's United Internet and U.S. rival Endurance while application hosts range from Silicon Valley's Rackspace up to industry giant Amazon Web Services.
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 another mass market hosting rival, GoDaddy, while Warburg Pincus holds a stake in 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 this summer, the sources added.
HEG is expected to post core profits, or earnings before interest, taxes, depreciation and amortization (EBITDA), of about 140 million euros this year, the people said adding bidders may value HEG at 12-13 times that, including debt.
A source at one of the potential bidders said an HEG deal involves putting a price on its two separate businesses: mass market hosting and managed hosting. Rackspace has a multiple to EBITDA around 4.3 times, Endurance runs 7.6 times and GoDaddy commands a 12 times multiple, the source said.
"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.
(Additional reporting by Eric Auchard and Alexander Hübner; Editing by Maria Sheahan/Ruth Pitchford)