Data Center Providers Sold for Over $25 Billion

Two of the top five data center providers were acquired this week in deals valued at a combined total of over $25 billion, as investors latch on to this booming market sector.

CyrusOne (NYSE: CONE), which is typically positioned as third in a market led by Equinix (Nasdaq: EQIX) and Digital Realty Trust (NYSE: DLR), respectively, will be taken private by investment firms KKR (NYSE: KKR) and Global Infrastructure Partners (GIP) in an all-stock transaction valued at about $15 billion (including debt of roughly $3.5 billion). The deal will give stakeholders $90.50 per share, representing a 25% premium over CyrusOne stock as of September 27, 2021, the last trading day before news started circulating about a possible takeover. The deal is expected to close in the second quarter of 2022.

In separate news, the segment’s fourth-largest player, CoreSite Realty (NYSE: COR), will be acquired by American Tower Corp. (NYSE: AMT) of mobile edge fame in a deal valued at about $10.1 billion. Shares will go for a modest premium price of $170 apiece in the deal, which is expected to close by the end of this year. CoreSite had roughly $1.8 billion in debt as of September 30, 2021.

Both deals show demand is great for data center colocation and interconnection as firms continue the migration to cloud services. There is also a chance for data center realty companies to help manage multi-cloud networking as ecosystems between hyperscalers, telcos, and technology vendors proliferate.

A New Era for CyrusOne

For CyrusOne, the news can only be good. The Dallas, Texas-based real estate investment trust (REIT) founded in 2001 and public since 2013 has performed decently in financial terms, growing revenue 11% year-over-year for the third quarter 2021. The company has about 50 data centers in North and South America and Europe, including nearly 470,000 square feet under construction in Northern Virginia; San Antonio, Texas; and London, U.K. And CyrusOne execs said on its most recent earnings call that once current projects are finished, data center capacity will be up 22% year-over-year.

In 2017, CyrusOne also spent $100 million on a joint partnership with GDS Holdings, which owns data centers in China, but the fate of that arrangement isn’t clear and CyrusOne hadn't responded to an inquiry as of this writing.

On the downside, management has been in disarray since CEO Gary Wojtaszek left in 2020 after eight years and ten months at the helm. Since then, an interim CEO, Tesh Durvasula, stepped aside for Wojtaszek’s replacement, Bruce Duncan, who abruptly quit a year later. Co-founder David Ferdman has been interim CEO since last July. With rumors swirling about a possible sale, it's clear why CyrusOne hasn't been able to hire a new CEO.

Enter KKR and GIP, which intend to supply the leadership needed to keep CyrusOne on track. KKR has roughly $429 billion assets under management, and it has been intent on investing in the data center realty space. In 2020, KKR sank $1 billion into Global Technical Realty (GTR), a a new data center REIT in Europe, and work is underway for 94 megawatts’ worth of GTR data center space throughout Europe. Latin America and the Middle East are on GTR’s radar too.

GIP manages assets worth $79 billion and has invested heavily in energy firms, which are particularly data gravity-heavy. CyrusOne could provide a welcome synergizer as GIP builds out its digital infrastructure holdings.

CoreSite Through American Tower’s Lens

CoreSite may have gotten the best deal of all this week. American Tower intends to make CoreSite key to its business of providing core infrastructure for 5G networks. “We expect the combination of our leading global distributed real estate portfolio and CoreSite’s high quality, interconnection-focused data center business to help position American Tower to lead in the 5G world,” said American Tower CEO Tom Bartlett in a press release, which also states the following:

“This transaction brings together American Tower’s wireless connectivity at the mobile edge and CoreSite’s highly interconnected data center facilities at the core edge to create an extended edge for our customers that can seamlessly support high performance, low-latency applications.”

A Widening Market

Clearly, the data center realty market is booming and shfting. The buyouts of CyrusOne and CoreSite follow a $10 billion deal in which Blackstone (NYSE BX) took another data center supplier, QTS Realty Trust, private in August 2021. All told, the three deals represent over 102 data centers and a combined valuation of over $35.1 billion. And these are three companies significantly trailing Equinix and Digital Realty in market share.

M&A is a factor too: Interxion, another market leader, was acquired by Digital Realty for $8.4 billion in 2020.

Who's next? There are many candidates among small, regional data center suppliers, some of which specialize in edge services. For larger players, these small fry could furnish a valuable piece of the cloud infrastructure puzzle.

As of this writing, CyrusOne shares were trading at $89.48, +4.03 (4.70%); CoreSite shares were trading at $172.72, +6.13 (3.68%). Their acquirers didn't fare so well: KKR was trading at $77.64, - 1.14 (1.45%). American Tower shares were trading at $260.68, -11.42 (4.20%).