Global Switch Holdings Limited, a carrier-neutral wholesale data center operator in Europe and Asia-Pacific, has been named in press reports from Bloomberg noting that a number of potential “suitors” are “weighing bids” for the company, with Global Switch potentially commanding an enterprise value of $10.7bn+. Specifically, the suitors named for Global Switch include private equity firms Blackstone (owns QTS Realty), KKR (pending acquisition of CyrusOne), and DigitalBridge (scaling in Asia-Pacific with Vantage), as well as data center operators Equinix (NASDAQ: EQIX) and Digital Realty (NYSE: DLR).

Given that Global Switch is one of the top 10 largest data center operators in the world, strategic interest in the company will be elevated. Indeed, this means that scaled data center operators such as NTT Global Data Centers, as well as large private equity firms with data center platforms, including Macquarie (AirTrunk), Brookfield (DCI, Evoque), and EQT (EdgeConneX), could also be interested in Global Switch.

Through a recent release, Global Switch noted that its shareholders “continue to evaluate their options to potentially introduce international strategic investors” into the company and “create liquidity for their stakes at the same time”. Furthermore, Global Switch states that this “evaluation is progressing but no formal transaction process has yet commenced”.

With this dynamic in-play, we breakdown the data center portfolio, recent operational developments, financial profile, and ownership of Global Switch.

Data Center Portfolio – Global Switch

Global Switch owns and operates 13 data centers in Tier 1 markets of Europe (London, Paris, Frankfurt, Amsterdam, Madrid) and Asia-Pacific (Hong Kong, Singapore, Sydney). Additionally, the company has 1 facility, known as Amsterdam East, that its currently under construction, which will enlarge Global Switch’s portfolio to 14 data centers upon completion.

Collectively, Global Switch’s 14 operational and under construction data centers comprise 467 MVA of utility power supply capacity across 5.0 million sqft (460k sqm) of gross floor area. Isolating only Global Switch’s 13 operational data centers, means its portfolio amounts to 427 MVA of utility power supply capacity across 4.6 million sqft (428k sqm) of gross floor area.

Europe Data Centers – Global Switch

In Europe, Global Switch’s 9 operational and under construction data centers comprise 227 MVA of utility power supply capacity across 2.9 million sqft (265k sqm) of gross floor area.

Data CenterCountrysqftsqmMVA
London EastUnited Kingdom705k65.5k46.0
London NorthUnited Kingdom252k23.4k13.0
Paris EastFrance376k34.9k25.0
Paris WestFrance180k16.7k25.0
Frankfurt NorthGermany128k11.9k14.0
Frankfurt SouthGermany190k17.7k14.0
Amsterdam WestNetherlands442k41.1k32.0
Amsterdam East*Netherlands344k32.0k40.0
MadridSpain236k21.9k18.0
Total – Europe2.9m265k227.0
*Currently under construction

Notably, Phase 1 of the Amsterdam East development project will deliver 80.7k sqft (7.5k sqm) of gross floor area, with subsequent phases coming online progressively.

Asia-Pacific Data Centers – Global Switch

In Asia-Pacific, Global Switch’s 5 operational data centers comprise 240 MVA of utility power supply capacity across 2.1 million sqft (195k sqm) of gross floor area.

Data CenterRegionsqftsqmMVA
Hong KongNew Territories756k70.2k100.0
Singapore Tai SengNorth-East288k26.7k30.0
Singapore WoodlandsNorth271k25.2k30.0
Sydney EastAustralia336k31.2k45.0
Sydney WestAustralia448k41.6k35.0
Total – Asia-Pacific2.1m195k240.0

Operational Profile – Global Switch

Global Switch serves a combination of hyperscale (e.g., cloud service providers), telecommunications companies, and enterprise customers through its data centers.

Utilization

As of year-end 2020, Global Switch’s portfolio utilization, excluding unfitted space or space being re-developed, declined by 8%, to 75% occupancy, from 83% occupancy at year-end 2019.

Leasing

In 2020, Global Switch secured 50 megawatts of new and renewal leasing activity.

Customers

Global Switch has 350+ tenants, with its top 10 tenants representing around 50% of its revenue. Notably, all of the company’s top 10 tenants, apart from Daily-Tech (see below), have an investment-grade credit rating. Finally, Global Switch’s weighted average remaining lease expiry (WALE) was 4 years as of year-end 2020.

Daily-Tech – Key Customer Relationship

In 2020, one of Global Switch’s largest customers, Daily-Tech, defaulted on its payment obligations for its data center service agreements. Specifically, Daily-Tech’s default related to three of Global Switch’s data centers, namely Hong Kong, Singapore Woodlands, and Frankfurt North. Ultimately, Daily-Tech’s end customer for the majority of its contracts was China Telecom.

As a result, Global Switch terminated its contracts with Daily-Tech at Singapore Woodlands (18 megawatts) and Frankfurt North (6 megawatts). However, Daily-Tech’s contract at Global Switch’s Hong Kong facility (15 megawatts) remained in-place as it was backed by a corporate guarantee from a Jiangsu Shagang Group-controlled entity. Finally, Daily-Tech also had pre-commitments for an additional 26 megawatts at Hong Kong, which has been released.

Financially, Daily-Tech’s default resulted in a corresponding impairment to its receivables. As a reference point, in 2019, this charge reduced Global Switch’s reported EBITDA by £34.8m.

Financial Profile – Global Switch

During 2020, Global Switch reported operating revenue of ~£417m ($566m), a 6% decrease year-over-year, and EBITDA of ~£238m ($323m), a 5% decrease year-over-year. Therefore, the company’s EBITDA margin was ~57% in 2020, which was relatively unchanged year-over-year.

Capital Expenditures

In 2020, Global Switch invested £350m in capital expenditures, a 22% increase year-over-year from £286.5m in 2019. Additionally, at year-end 2020, the company had committed capital expenditures of only £36m.

Debt

In 2020, Global Switch’s net debt-to-EBITDA increased to 6.2x as a result of the default of one of its largest tenants, Daily-Tech (see above), and heightened development spending.

Ownership – Global Switch

Global Switch Holdings Limited is incorporated in the British Virgin Islands and is 51.7%-owned (look-through basis) by Jiangsu Shagang Group, a steel production company in China. In addition, consortiums comprised of Chinese institutional and private investors, known as Elegant Jubilee Limited and Strategic IDC Limited, invested in Global Switch in December 2016 and July 2018.

Together, these Chinese entities acquired 100% of the equity interests in Global Switch through three separate acquisitions from Aldersgate Investments Limited, an investment holding company for the Reuben Brothers, namely David and Simon Reuben. Note that Jiangsu Shagang Group participated in the Elegant Jubilee and Strategic IDC consortiums and thus has a higher look-through shareholding in Global Switch via indirect stakes, than solely its directly acquired interests.

Shareholder Transactions

Below is a summary of Global Switch’s three prior ownership changes:

  • December 2016: Elegant Jubilee acquired a 51.0% equity interest in Global Switch from Aldersgate Investments for $2.7bn, implying a valuation of 23x EBITDA
  • July 2018: Strategic IDC acquired a 24.99% equity interest in Global Switch from Aldersgate Investments for $2.4bn, implying a valuation of 30x+ EBITDA
  • August 2019: Jiangsu Shagang Group directly acquired (via Tough Expert Limited) the remaining 24.01% equity interest in Global Switch from Aldersgate Investments in a transaction valued at £1.8bn ($2.2bn)

Following the final transaction in August 2019, Aldersgate Investments (Reuben Brothers) fully-exited its equity ownership in Global Switch. Additionally, Global Switch’s second largest shareholder became AVIC Trust (AVIC and OCBC Bank of Singapore) with a ~10.8% ownership stake (look-through basis).

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