Data centre infra providers take the SPAC route to raise capital
Published 18 March 2021
On March 8 this year, Kevin Timmons, CEO of InterPrivate IV InfraTech Partners Inc looked at his phone and thought about what he said at the company’s NASDAQ listing.
“The InfraTech fund intends to change the world by turbocharging the growth of critical technology through a business combination in the ever-expanding digital infrastructure space,” he had said. Timmons’ intention is backed by the IPO which managed to raise $250 million, which will be operated as a special purpose acquisition corporation (SPAC).
The trend of companies taking the SPAC route to raise capital in the post-COVID era is gathering steam. InterPrivate is an active player in the use of SPACs, investment vehicles that raise capital from investors for the purpose of acquiring a private company. InterPrivate IV InfraTech Partners Inc. is one of four SPACs sponsored by InterPrivate to capitalize on investment trends.
A SPAC is essentially a company set up with the sole purpose of raising money through an IPO, to eventually acquire another company. Referred to as “blank-check companies, as the people buying into the IPO do not know what the eventual acquisition target company will be.
Similar to InterPrivate, colocation player Cyxtera Technologies will be listed on NASDAQ exchange via a $3.4 billion merger deal with Starboard Value Acquisition Corp (SVAC), a SPAC. Once complete, the combined entity will be the third-largest publicly held global retail colocation provider.
Cyxtera has gained a reputation worldwide since being formed in 2017. Its footprint spans across 29 markets with 61 data centres, serving more than 2,300 leading enterprises, service providers, and government agencies.
Experts see the deal as the first major acquisition in 2021 amidst mounting investment interest in the digital infrastructure sector. Since last year, the shift to data economy has accelerated the trend with hyperscale computing gaining traction via the entries of credible giant corporations.
The acquisition of Vertiv by GS Acquisition Holdings, a SPAC created by Goldman Sachs and veteran executive David Cote, sparked the early enthusiasm in 2020. In February 2021, Bloomberg also reported at least three SPACs welcoming data centre veterans to join their board or announcing their digital infrastructure investment strategy.
Nelson Fonseca, the CEO of Cyxtera Technologies, told DCF that Cyxtera is well-positioned to be a consolidator in the global data centre industry, pointing to the sector as “fragmented and ripe for further consolidation”.
After the Starboard Value-backed SPAC totally acquires Cyxtera in mid-2021, the combined company, operated as Cyxtera Technologies, will go public on NASDAQ under the ticker symbol CYXT. The company expects to receive about $654 million in proceeds. Its existing owners, including private-equity firms BC Partners and Medina Capital, will retain 58 per cent ownership and roll 100 per cent of their current equity stakes into the company.
Even high-profile CEOs like Richard Branson and fellow billionaire Tilman Fertitta have jumped on the trend and formed their own SPACs. With the COVID-19 pandemic, many companies have postponed their IPOs and by taking the SPAC route they can raise capital faster than a conventional IPOs, experts said.
“Starboard’s deep expertise across corporate governance, operational excellence, and capital allocation will immediately benefit us as a public company, as we drive long-term value creation,” said Manuel D. Medina, Executive Chair of Cyxtera and Founder and Managing Partner of Medina Capital.
During the 18 years of experience in the technology sector, Starboard has successfully boosted performances of more than 30 public portfolio companies with its broad networks and relationships in the industry.
Last year, Cyxtera also enjoyed its first full year of stable operations, generating estimated revenues of $690 million and Adjusted EBITDA of $213 million, though being downgraded in the credit rating of Moody’s in 2019 due to weak revenue growth.
“Cyxtera is at an exciting inflexion point, poised for significantly improved growth and profitability in an industry with powerful secular tailwinds,” said Jeff Smith, Chair of SVAC and CEO of Starboard.
In the conference call, Smith emphasized that Cyxtera is an ideal merger deal as Starboard has been seeking “deeply undervalued companies” with impressive management teams to strengthen their investing list.
Globally, around 200 SPACs went public in 2020, raising about $64 billion in total funding, nearly as much as all of last year’s IPOs combined, according to Renaissance Capital.