How KKR’s $15B Deal Changes the Landscape

November 16, 2021

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Data center specialist CyrusOne had been the subject of M&A rumors.

CyrusOne, London II Data Center, London. Image courtesy of CyrusOne Inc.
CyrusOne, Allen Data Center, Allen, Texas. Image courtesy of CyrusOne Inc.
CyrusOne, Carrollton Data Center, Carrollton Texas. Image courtesy of CyrusOne Inc.
CyrusOne, Chandler Data Center, Chandler, Ariz. Image courtesy of CyrusOne Inc.
CyrusOne, Frankfurt Data Center I & II, Frankfurt, Germany. Image courtesy of CyrusOne Inc.

Change is afoot in the data center world. CyrusOne Inc., a data center company with a portfolio of 50 high-performance facilities across the globe, has entered into a definitive agreement under which KKR and Global Infrastructure Partners will acquire the REIT in a deal valued at $15 billion. KKR and GIP will purchase all outstanding shares of CyrusOne common stock and assume existing debt in an all-cash transaction.

News of CyrusOne’s planned merger comes as no surprise to those in the industry, as the company has been the subject of M&A rumors for quite some time, as noted in a research note by MoffettNathanson LLC. CyrusOne’s board of directors, having held a strategic review process to establish the best path toward maximizing stockholder value, unanimously approved the $90.50 per share purchase price, which constitutes a substantial 25 percent premium to the REIT’s most recent closing price.

“CyrusOne’s outcome is clearly a positive for its equity holders, which ultimately garnered a strong price for their shares, and the company deserves credit for landing such a solid price,” according to the MoffettNathanson note. “[It] speaks to the demand for scaled data center platforms.”

However, digging a little deeper beyond the surface, the analysis isn’t all positive. “On the topic of valuation, CyrusOne sold for more than we argued it was worth,” MoffettNathanson continued. “The company’s return profile has not been particularly impressive, nor have its economic profit trends, especially after accounting for the long-term burden of depreciation, embedded repricing risk and share issuances.”

KKR and GIP, on the other hand, see nothing but opportunity ahead as they tout plans of leveraging their global resources to support CyrusOne’s ongoing expansion across important digital gateway markets. KKR is making its investment in CyrusOne via its global infrastructure and real estate equity strategies, while GIP is pulling from its global infrastructure funds. If all goes as planned, the transaction will close in the second quarter of 2022, and CyrusOne will go private as a wholly owned entity of KKR and GIP.

Big day for data centers

MoffettNathanson described November 15, as a “data center double-header” as not only did news emerge of CyrusOne’s deal with KKR and GIP, but American Tower Corp. announced it had entered into an agreement to acquire CoreSite Realty Corp. and its 25 data centers for approximately $10.1 billion. CoreSite will remain a public entity.

With the CyrusOne and CoreSite deals, as well as Blackstone’s planned $10 billion acquisition of QTS Realty Trust, the data center sector is starting to look a lot different. MoffettNathanson summed up the day: “And just like that, the public data center landscape has been upended.”