Via Oak Hill, ViaWest expands

Contact: Ben Kolada, Jeff Paschke

In its first acquisition under new ownership, ViaWest announced today that it is buying three Salt Lake City datacenter facilities from Consonus Technologies. The transaction is the first in a line of expected deals after the company received a capital infusion from its sale to Oak Hill Capital Partners in April.

Financial terms weren’t disclosed; however, our analysts at Tier1 Research estimate that the transaction was in the range of $35-40m. The acquisition brings ViaWest’s total Salt Lake City datacenter count to six, and comes just three months after the vendor announced that it was adding 14,000 square feet to one of its existing Salt Lake City facilities.

Indeed, even at the high end of our estimated range, $40m may seem to be a bargain for three facilities with a combined total of 100,000 square feet of datacenter space. However, we would point out that ViaWest is not in the business of owning the shell building, but rather just the internal infrastructure (generators, switches and all furniture and fixtures). Its facilities are generally maintained on a long-term lease basis.

Under Oak Hill’s wing, we expect ViaWest to continue to acquire additional properties. (The firm inked three other deals under previous ownership, according to The 451 M&A KnowledgeBase.) Given its past acquisitions, ViaWest appears to prefer buying into new markets, rather than acquiring properties in markets where it already has a presence. As such, we don’t expect to see another market-consolidating play anytime soon. The company has a strong foothold in the western US – Salt Lake City follows Denver and Dallas as the firm’s third-largest market, in terms of usable datacenter space – but ViaWest executives have told us in the past that acquisitions will not necessarily be limited to the western states.

Private equity goes back to the hosting table in a big way

Contact: Ben Kolada

So far this year, three private equity (PE) firms have each shelled out at least $400m for a hosting provider, making 2010 the most active year for big-ticket hosting deals for PE shops. And these firms are no novices. Welsh, Carson, Anderson & Stowe, GI Partners and Oak Hill Capital Partners have a combined $32bn in capital under management, and each has had previous experience in the hosting sector. The fact that they’re coming back to the hosting market – and paying relatively rich valuations to do so – is a hearty endorsement of the sector’s long-term growth potential.

In the most recent deal, Welsh Carson teamed up with Peak 10 management to buy the company from Seaport Capital and McCarthy Capital. Although terms of the transaction weren’t disclosed, we understand the buyout consortium paid just north of $400m for Peak 10, or about 12 times the company’s annualized 2010 EBITDA. For comparison, Savvis, in which Welsh has been invested since 1999, is currently trading at 5x annualized EBITDA.

In another management buyout, SoftLayer Technologies’ management announced in August that it was partnering with GI Partners to buy the dedicated hosting specialist from its angel investors. Again, terms weren’t disclosed, but we believe the deal valued SoftLayer at about 10x its annualized EBITDA, or about $450m. As my colleagues Philbert Shih and Aleetalynn Schenesky-Stronge noted, GI Partners is a well-known participant in the hosting and Internet infrastructure space, having invested in Digital Realty Trust and The Planet. GI Partners intends to combine The Planet and SoftLayer, with SoftLayer’s management left in charge. The combined company, which would have $270m in estimated revenue for 2010, could go public as early as next year.

SoftLayer was GI Partners’ second hosting play of the year. In April, the firm banded together with Oak Hill Capital and ViaWest’s management to buy the company from a consortium of PE investors. Oak Hill Capital was the lead investor, with GI Partners and management retaining minority stakes. We estimate the price of the deal at $420m, which works out to about 10x ViaWest’s cash flow. Oak Hill Capital isn’t new to the datacenter industry, having previously invested in TelecityGroup.

More PE moves could be in the works, as we’re aware of quite a few more properties for sale. If the flurry of M&A activity during the recent VMworld conference is any indication of what happens when a group of likeminded individuals gets together, our 2010 Hosting & Cloud Transformation Summit could lead to a number of hosting and Internet infrastructure deals. The conference opens today in Las Vegas and continues through Wednesday.

Select PE hosting deals in 2010

Date announced Acquirer Target Deal value
September 1 Welsh, Carson, Anderson & Stowe/Peak 10 management Peak 10 $400m*
August 4 GI Partners/SoftLayer Technologies management SoftLayer Technologies $450m*
April 20 Oak Hill Capital Partners/ViaWest management ViaWest $420m*

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

PE: which door is marked ‘exit’?

by Brenon Daly, Jason Schafer

After chalking up some 17 purchases under the ownership of a private equity (PE) consortium, ViaWest has been bought by another PE firm. Oak Hill Capital Partners will pick up the 11-year-old managed hosting provider, which currently operates 16 datacenters and counts 1,000 customers. Although financial details of the transaction were not disclosed, we estimate the purchase price at around $420m. That works out to about 4.2 times trailing revenue and about 10 times cash flow for ViaWest, according to our understanding. (My colleagues at Tier1 Research estimate that roughly 70% of ViaWest’s revenue comes from its colocation business, with the remaining 30% coming from managed services.)

The deal, which should be completed this quarter, caught our eye because it is yet another recent sponsor-to-sponsor transaction that we estimate is valued in the hundreds of millions of dollars. Almost exactly two months ago, Francisco Partners flipped RedPrairie to New Mountain Capital for what we understand was roughly the same price as ViaWest. The sale of the supply chain management vendor came even though it had filed a few months before that to go public.

While there’s certainly nothing wrong with buyout shops swapping assets, it’s hardly the sign of a healthy exit environment for PE firms. Of course, there is one gigantic counterpoint to that: NXP Semiconductors, owned by Bain Capital and KKR, filed last week to sell $1.15bn worth of shares on the NYSE. The buyout tandem picked up the chip maker in 2006, when it was spun off of Royal Philips Electronics. We’re certain that a lot of fellow financial buyers, which also took home chip companies during the LBO boom in 2006-07, will be following NXP’s offering very closely.