04 January 2018
| Jason Mcgee-Abe
CyrusOne’s definitive agreement to acquire hyperscale data centre provider Zenium Data Centers for $442 million provides first critical step in its European expansion strategy.
The deal, which is expected to close in Q1 2018 subject to the customary closing conditions and regulatory approvals, was reached with Quantum Strategic Partners, a private investment fund managed by Soros Fund Management LLC, and certain other sellers.
“This transaction establishes a significant presence for us in Europe’s two largest data centre markets and provides a platform to scale to meet the strong demand across the continent,” said Gary Wojtaszek, president and chief executive officer of CyrusOne, which now has 44 data centres worldwide.
Large-scale data centre developer and operator Zenium owns four facilities serving London and Frankfurt, providing significant global footprint expansion opportunities for the global data centre real estate investment trust (REIT) and operating leverage. The two facilities in Frankfurt will be owned by CyrusOne, while the two facilities in London are leased with a remaining weighted average lease term of approximately 40 years, inclusive of renewal options.
Wojtaszek added: “The Zenium team is experienced and well-respected with particular expertise leasing to hyperscale companies, and they have built an outstanding, fast-growing company. The capacity for further growth at their existing locations remains substantial, allowing us to nearly double the size of their business, and we will be able to leverage the European infrastructure to expand within London and Frankfurt and into new markets in an efficient, cost-effective manner.”
CyrusOne should further benefit from significant operating leverage as the combined company expands within London and Frankfurt as well as into new markets, with a new site in Frankfurt already under contract and advanced discussions under way for additional organic site developments in London, Frankfurt, and Dublin.
Interestingly, the number of large data centres operated by hyperscale providers is rapidly approaching the 400 mark, according to new data from Synergy Research Group, which added that we will pass the 500 milestone before the end of 2019.
Franek Sodzawiczny, Zenium’s founder and chief executive officer, added: “We are thrilled to join the CyrusOne team and believe that their unique capabilities and strong customer relationships, particularly among hyperscale companies, will accelerate growth across the existing European portfolio. We look forward to realising the benefits of our combined expertise and similar operating philosophies as we continue to broaden CyrusOne’s footprint to capture growing European demand.”
Upon full buildout, the four properties will consist of more than 260,000 colocation sq ft and 49.3MW of power capacity. Approximately 54% of this power capacity, or 26.8MW, is currently leased.
* Represents critical load power capacity available for lease upon full buildout
With 22.5MW of critical load available for development and lease-up, the acquisition meaningfully accelerates CyrusOne’s ability to address the increasingly global needs of its existing customers. At the same time, the company’s expanding footprint will allow CyrusOne to more effectively compete for opportunities from potential customers looking for a single provider with a geographically diverse presence.
Given the significant investment to date, CyrusOne expects to deliver this incremental capacity at an estimated build cost of approximately $115 million, or $5.1 million per MW, while the total construction cost per MW across the assets once fully built out is expected to average $6.5-7.0 million per MW, largely in line with CyrusOne’s current all-in build costs.
The purchase price of $442 million reflects a multiple of 18 times expected annualised adjusted EBITDA of approximately $25 million from both commenced and signed but not yet billing leases. CyrusOne will also reimburse Zenium for capital expenditures between signing and closing.
CyrusOne has the option to assume approximately $65 million of debt currently outstanding under two existing credit facilities (denominated in GBP and EUR), with total capacity of approximately $185 million. If the company assumes the debt, the balance of the purchase price will be financed through capacity under its $1.1 billion revolving credit facility, which is fully undrawn. If CyrusOne does not assume the debt, the full amount of the purchase price will be financed through capacity under its revolving credit facility.
CyrusOne completed a $400 million offering of senior notes in early November, using the proceeds to repay borrowings outstanding under its revolving credit facility. Q4 also saw CyrusOne sell approximately 4.8 million shares of its common stock through its at-the-market equity programme at an average price of $62.09, raising approximately $296 million in net proceeds. The company has $200 million in remaining capacity under the current ATM program authorisation.
On a standalone basis, CyrusOne expects 2018 total revenue growth of 17-20% and adjusted EBITDA growth of 19-22% compared to 2017. In addition, CyrusOne forecasts Zenium to produce 2018 adjusted EBITDA of $17-19 million and full year 2019 adjusted EBITDA of $32-34 million.
The Zenium portfolio consists of more than 10 customers, with hyperscale companies representing nearly 75% of contracted revenue. More than half of the customers will be new to CyrusOne, including two Fortune 1000 companies. Over 75% of the contracted revenue is generated from investment grade customers, and the weighted average remaining lease term is approximately six years.
CyrusOne was one of the companies listed as notable data centre-orientated M&A acquirers in Synergy Research Group's latest report, which found the total value of significant data centre-orientated M&A deals that closed in 2017 surged to $20 billion, almost doubling the figure from 2016.