CyrusOne (NASDAQ: CONE), a hyperscale data center operator, today announced an agreement to be acquired by KKR, a private equity firm, and Global Infrastructure Partners (GIP), an infrastructure investment manager, in an all-cash transaction valuing CyrusOne’s common stock at $90.50 per share, which represents a 25% premium to the company’s unaffected stock price, prior to market speculation of a potential sale.

Overall, KKR and GIP’s pricing implies an equity value of $11.5bn and an enterprise value of $15bn for CyrusOne. Therefore, CyrusOne is being valued by KKR and GIP at ~25.5x 2021E EBITDA and ~23x 2022E EBITDA.

KKR is making its equity investment primarily from its global infrastructure and real estate funds. Whereas GIP is making its investment from its global infrastructure funds. Particularly, both investor’s vehicles are:

  • KKR Global Infrastructure Investors IV: $15.0bn fund which began its investment period in June 2021
  • KKR Real Estate Partners Americas III: $4.3bn fund which began its investment period in December 2020
  • Global Infrastructure Partners IV: $22bn fund which held its final close in December 2019

Finally, the transaction is expected to close in Q2 2022, at which time CyrusOne will become a privately-held company.

CyrusOne – Overview

CyrusOne operates 57 data centers, representing 971 megawatts of power capacity across 5.05 million sqft of colocation space. The company’s primarily hyperscale data centers in the United States and Europe support ~1.0k customers. CyrusOne generates 50%+ of its revenue from cloud service providers (e.g., Microsoft, Google, Amazon Web Services), with contributions from social media companies (e.g., Facebook) as well.

Financial Performance – Q3 2021

In Q3 2021, CyrusOne reported revenue of $304m and adjusted EBITDA of $149m. Therefore, on an annualized basis, CyrusOne generates revenue of $1.2bn and adjusted EBITDA of $597m.

Digital Infrastructure, Data Centers – KKR and GIP

KKR is a seasoned digital infrastructure investor through its Global Infrastructure Investors fund series having invested across the three major sub-sectors of digital infrastructure, namely towers, data centers, and fiber. In contrast to KKR, Global Infrastructure Partners (GIP) has not made any significant investments in digital infrastructure to-date (beyond CyrusOne), instead focusing on the infrastructure sectors of energy and transport.

Data Centers

Within the data center sub-sector of digital infrastructure, KKR via its Global Infrastructure Investors III fund has committed $1bn to Global Technical Realty (GTR). Specifically, GTR is a hyperscale build-to-suit (BTS) data center developer, owner, and operator in Europe. GTR’s ongoing projects include developments in Slough (London), UK and Tel Aviv, Israel.

Global Technical Realty (GTR) is led by Franek Sodzawiczny. Interestingly, Sodzawiczny previously founded Zenium, a data center business which was ultimately sold to CyrusOne, in August 2018, for $442m.

CEO In-Waiting?

A key consideration for any buyer of CyrusOne has been that the company does not have a permanent in-place CEO. Recall that in July 2021, CyrusOne undertook a separation with Bruce Duncan, the company’s President and CEO, replacing him with David Ferdman, as the company’s interim President and CEO.

With Franek Sodzawiczny having familiarity with certain CyrusOne assets and already being part of KKR’s Global Infrastructure Investors managerial bench, the executive could emerge in the role of CEO at CyrusOne as a privately-held company.

Strategy

Together KKR and GIP will provide additional equity funding towards CyrusOne’s global footprint expansion into “key global digital gateway markets”. During CyrusOne’s Investor Day, management noted that the company targets unlevered stabilized development NOI yields of 8% to 10%.

Transaction Advisors – CyrusOne, KKR, and GIP

CyrusOne’s financial advisors were Morgan Stanley and DH Capital. Additionally, CyrusOne’s legal advisors were Cravath, Swaine & Moore, Venable, and Eversheds Sutherland.

KKR and GIP’s financial advisors were Goldman Sachs, Barclays, Wells Fargo, Citigroup, and J.P. Morgan. Additionally, KKR and the acquiring consortium’s legal advisors were Kirkland & Ellis and Dentons. Finally, GIP’s legal advisor was Paul, Weiss, Rifkind, Wharton & Garrison.

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