I am here with Art Zeile, the CEO of HostMySite.com We are talking about the transaction in which Wachovia Capital Partners acquired HostMySite.com from prior owners, Lou Honick and Neil Heuer. You have taken the reins in the past several weeks, correct?
ZEILE: That is correct. We took the reins specifically on the third of June.

Can you tell me what brought on the decision by HostMySite.com to be acquired?
ZEILE: Absolutely. In fact, it kind of really comes back to my personal history. I started Inflow, a managed data center services company back in 1997. And we started with a single data center in Denver, Colorado and we expanded to 21 data centers– 20 in the United States and one in Dublin, Ireland. Definitely we delivered a similar set of services to our customers that HostMySite.com delivers today.

Very importantly, I sold that company to SunGard Availability Services in 2005. We had a non-compete for a couple of years, and I joined forces with Wachovia Capital Partners in 2007 to be an entrepreneur in residence. And one of the things that they challenged both Joel Daly, my business partner, and I to do was to come up with a theme that was kind of the next generation beyond Inflow. And we believe that dedicated server hosting, and more specifically what HostMySite.com is doing, is that next generation beyond what kind of the late ’90s and early 2000s allowed CTOs and CIOs to accomplish with their infrastructure. We believe that this is kind of a stepping-stone to grid computing and utility computing. There’s a lot of discussion about what that all means, but we do believe that dedicated server hosting, especially the quality of service embodied in HostMySite.com, is the closest thing to the promise of brand computing that is available on the market today.

I think the challenge of opening a company that is an IT infrastructure company on your own, meaning using your own checkbook, becomes daunting at a certain point.

And how did you meet [HostMySite.com founders] Lou Honick and Neil Heuer?
ZEILE: We actually started looking at the folks that operate in this industry probably about a year ago, and so we’ve talked to a number of the different players in the industry. And specifically we were introduced to Lou by DH Capital, which is an investment bank that operates out of both New York City and Boulder, Colorado. By virtue of the relationship that Lou had with DH Capital, we kind of brought all parties together, had an initial discussion in February. There was a kind of meeting of the minds as to what our mission entailed and what they’d like to do, and it just worked itself into a process of negotiations and discussions that resulted in the transaction on the third of June.

Was HostMySite.com looking for growth also?
ZEILE: Yes. I think the challenge of opening a company that is an IT infrastructure company on your own, meaning using your own checkbook, becomes daunting at a certain point. And what I mean by that is that when you talk about the basic building blocks of HostMySite.com in terms of what’s necessary to deliver a service, they include data centers and servers. That’s probably the most basic components or building blocks that are used. So the servers can be bought for several hundred dollars up to thousands of dollars per server, and you’ve delivered those servers to your customers and then you charge them per month. But the data center expenditures can become very high, especially as you build bigger and bigger data centers and so growth at some point forces you into the hands of an investor. If you want to build a 15,000-square foot or 20,000-square foot data center and the build is anywhere between $500 and $1,500 per square foot, you’re talking about large sums of money, on the order of millions of dollars. So you get to the point where that incremental step in to a big data center means a lot of money and it probably doesn’t come out of your own personal wallet unless you happen to be a very rich man to start with.

Not out of the general operating budget.
ZEILE: Right, that’s exactly right. That’s the best way of putting it is that the profit of the company really can’t get you to the place where you can afford this kind of step function cost to get into a bigger data center. So I think that they realistically looked at the fact that they’ve grown the company extremely well on their own means, but they really needed deep-pocketed investor like Wachovia Capital Partners to come in to really make it to the next level.

And your relationship with Wachovia essentially enabled you to secure the financing and capital investment to acquire HostMySite.com?
ZEILE: Yes. That’s exactly right. I’ve had a personal relationship with Wachovia since 1994, so approximately 14 years. They were the first and largest investor in Inflow, a data center company that I spoke about earlier.

They have a tremendous knowledge of the industry and the trends in the industry so just having that confidence and comfort level with both myself as the CEO, Joel as the COO, and the industry itself allowed them to step in and make an aggressive price, you know, put it down on the table and make the transaction possible.

When you and Joel Daly were at Inflow, when you’d sold to SunGard, can we talk about the reason why you did that?
ZEILE: Yes. Actually, in the grand scheme of things, at Inflow we had a total of 16 investors. We had 21 data centers. Each one of these data centers basically on a round-number basis cost us upwards of $10 million to get up and running. So you think about the sums of money involved; that dictated the number of investors that were in our syndicate. And at a certain number of years, and specifically for us it was approximately eight years after we started, it was the right time for those investors to essentially see liquidity for their investment.

So everybody kind of walked around saying, “This is a good time to at least consider some kind of a transaction.” And we also at that exact same time– corresponded exactly– we got a call from SunGard where they made an unsolicited offer to buy the company.

In my opinion, it wasn’t just one or the other. It was the fact that people were receptive to an offer and, “Oh by the way, we kind of got this call out of the blue saying, ‘You know you guys are doing really great things, and we’d like to make a bid to buy the company.’” That triggered toward thinking in depth about what that meant, and ultimately it resulted in us selling the company.