Tag: ABRY Partners

CyrusOne’s steady rise

Ben Kolada

Contact: Tejas Venkatesh, Ben Kolada

CyrusOne, the colocation bull that has now changed hands three times since 2007, debuted on the Nasdaq today with a valuation topping $1bn. The fast-growing company was spun off of Cincinnati Bell but is still majority owned (72%) by the regional telco. Shares popped during early trading, continuing the company’s history of creating considerable wealth for each of its owners.

The datacenter company, which is structured as a real estate investment trust, sold 16.5 million shares at $19 per share, higher than its previously guided $16-18 range. The IPO raised a total of $313.5m, though underwriters have an option to sell an additional 2.5 million shares. Shares jumped approximately 10% when they hit the Nasdaq and held the gains through midday trading. CyrusOne currently sports a market cap of about $1.3bn.

CyrusOne operates 24 facilities, primarily in the Ohio and Texas markets. The company offers colocation services aimed at enterprise-class customers requiring highly available facilities, engineered for dense power and reliability. Morgan Stanley and Bank of America Merrill Lynch were joint bookrunners for its IPO.

This is the third time shares of CyrusOne have traded hands since 2007. And in each transaction, its value has steadily climbed, creating considerable wealth for each of its owners.

CyrusOne’s rising valuation

Date Liquidity event Valuation
January 18, 2013 IPO $1.3bn
May 12, 2010 Sale to Cincinnati Bell $525m
July 11, 2007 Sale to ABRY Partners $130m

Source: The 451 M&A KnowledgeBase

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Are Internet infrastructure exits interconnected?

Ben Kolada

Contact: Ben Kolada

Providing further proof that it’s a tough time to be on the market, much less come to market, GI Partners has opted to sell its Telx investment rather than battle through an IPO. The company’s sale to ABRY Partners and Berkshire Partners closes the books (at least for now) on a proposed public offering that Telx initially filed back in March 2010. And we wouldn’t be surprised if Telx’s sale caused other IPO candidates in the industry to rethink their entry onto the public stage as well.

Terms weren’t disclosed, but we understand that Telx caught a fairly high valuation that would have provided a more immediate – and lucrative – return than an IPO. Although the Internet infrastructure industry showed resilience throughout the recession, consistently growing revenue, that hasn’t always been the case when it comes to the public markets. Chinese datacenter operator 21Vianet Group, for example, closed its first trading day on the Nasdaq with a market cap of $1bn. However, since then its shares have lost 40% of their value. (We note, however, that the success of 21Vianet’s IPO was due in part to success from other Chinese IPOs, as well as buyout speculation in the industry.)

Just as the Internet infrastructure market focuses on interconnection, we suspect that its participants’ exits are also interconnected. We feel that Telx’s recent sale to ABRY Partners and Berkshire Partners could cause the industry’s other IPO candidates to pause before hitting the public markets. Our colleagues at Tier1 Research maintain a list of the Internet infrastructure industry’s potential IPO candidates. Although speculation surrounds such fast-growing firms as SoftLayer Technologies, Peak 10, Zimory and Next Generation Data, an IPO for these players may be pushed to the back burner, at least for the foreseeable future.

Windstream makes hosting splash among private equity waves

Ben Kolada

Contact: Ben Kolada

Windstream Communications bought into business services once again, this time picking up managed hosting, colocation and cloud computing provider Hosted Solutions. The deal is the first hosting play for Windstream, and shows that private equity buyers aren’t the only ones shopping in the sector.

Windstream is paying $310m in cash for Hosted Solutions, which posted $52m in trailing sales. The deal values Hosted Solutions at 12.7x its trailing EBITDA, and more than double the price that ABRY Partners paid for the company in April 2008. Hosted Solutions employs 125, and Windstream initially plans to retain the majority of those employees, though we expect there will be some corporate turnover as part of the integration.

Although telcos have gone shopping for colocation and hosting companies this year (with the most notable deal being CyrusOne’s sale to Cincinnati Bell), private equity firms have dominated the headlines. We recorded 10 hosting and colocation deals this year with deal values of at least $100m. Of this group, half of the targets went to private equity buyers, and four of those deals involved the target company simply jumping from one PE portfolio to another. Further, buyout shops, including firms both in the US and abroad, accounted for nearly half (46%) of the total spending for these 10 deals.

Top 10 hosting and colocation deals of 2010

Buyer category Number of acquisitions Percent of total spending
Private equity 5 46%
Hosting/colocation 3 32%
Telecommunications 2 22%
Total spending $3.8bn

Source: The 451 M&A KnowledgeBase

Cablevision breaks the mold with Bresnan acquisition

Ben Kolada

Contact: Ben Kolada

Marking a significant departure from its recent practice, Cablevision Systems said last week that it would hand over almost $1.4bn in cash and stock for Bresnan Communications. The deal by the Dolan gang is their first major telecom acquisition since they picked up a portion of Tele-Communications in 1998. And they certainly paid up for Bresnan.

Cablevision’s offer values Bresnan at about 3.4 times trailing revenue and just over 8x projected 2010 cash flow, according to our understanding. On a per-subscriber basis, the acquirer is paying $4,500 a head. Across the board, that’s a far richer valuation – in some cases, twice as rich – than fellow telco RCN got in its take-private in March. Buyout shop ABRY Partners paid $1.2bn for RCN, or roughly 1.6x trailing revenue (on an enterprise value basis) and $2,800 per subscriber.

Given the size of this deal, along with the fact that Cablevision used equity in the purchase, we don’t expect the Bresnan transaction to signal the beginning of a shopping spree. Indeed, Cablevision executives maintain that they are not looking for additional properties. After all, Cablevision doesn’t need to buy more systems – the Tele-Communications acquisition gave it sufficient economies of scale. The Bresnan buy is simply a rare opportunity to obtain upgraded systems with strong growth potential.

M&A: Cable comparison

Date announced
 Acquirer Target Deal value Price-to-sales multiple
March 5, 2010 ABRY Partners RCN $1.2bn 1.6
June 14, 2010 Cablevision Systems Bresnan Communications $1.4bn 3.4*

Source: The 451 M&A KnowledgeBase *451 Group Estimate

The Art of hosting

Art Zeile is at it again. The private equity arm of Wachovia recently bought privately held HostMySite for an estimated $60m. Wachovia Capital Partners has tapped Zeile and his management team to lead the company, and intends to aggressively grow the venture through further acquisitions. Despite an unfavorable market for M&As, both Wachovia and Zeile are very bullish about going on a shopping spree. And they have a pile of cash – to the tune upwards of $150m – to do so. We hear that talks are already under way. But while awaiting official word of forthcoming deals, we take a stab at identifying some potential candidates.

Although it’s in a unique position as one of the leaders in the niche managed dedicated hosting space, HostMySite is currently not a heavyweight by any means. It is running about $20-25m in revenue at the moment. Nonetheless, it is the future prospects and track record of the new management that have Wachovia and a few other undisclosed investors so willingly parting with their money. Zeile and his team founded Inflow Inc in 1997, successfully navigated it through the bubble era, and with a few strategic acquisitions turned it into a $70m company. Inflow was sold to SunGard Data Systems in early 2005 for almost $200m.

The managed dedicated hosting sector has seen a lot of consolidation over the past few years. One of the main reasons for this is the prevalence of on-demand and outsourced hosting. The dominant players in the space are looking to build up scale and expand geographically to better meet their customers’ increasing needs.

According to insiders, HostMySite is looking at buying up small to medium-sized companies with revenue greater than $10m, largely focused on managed dedicated hosting. It has a preference for companies based in the West and Midwest, for geographical diversity. The market is littered with hosting providers, but few that fit those parameters, especially ones focused mostly on managed dedicated hosting. We did manage to come up with a few potential targets: LiquidWeb, ServePath, and INetU. All three are making names for themselves in the managed dedicated hosting space – but with revenue between $10-20m, they’re still small enough for a potential acquisition.

Frankly we would be surprised if at least one of these companies wasn’t acquired in the near future, either by HostMySite or another company. In fact, given the revenue multiples typically applied to acquisitions in this space (between 2.5 to 3.5 times trailing 12-month revenue), all three could conceivably be bought for about $100m – leaving ample cash for future endeavors.

Recent select managed hosting acquisitions

Date Acquirer Target Deal value TTM revenue
April 2008 ABRY Partners Hosted Solutions $140m $39m*
December 2006 Fujitsu Services TDS AG $132m NA
June 2008 International Game Technology Cyberview Technology $76m $53m
February 2006 VeriSign 3united Mobile Solutions $65m NA
April 2008 Layered Technologies FastServers.Net $13.5m* $9.5m*

Source: The 451 M&A KnowledgeBase * official 451 Group estimate