Cyxtera Technologies, one of the heavyweights in the global colocation market, is going public through a merger with a special-purpose acquisition company, or SPAC, in a deal that values the data center provider at $3.4 billion.
The deal gives Cyxtera, the largest privately held colocation company in the US and one of the largest in the world, access to much needed new sources of capital to fund growth. Moody’s downgraded its credit rating in 2019, citing weak revenue growth and a need to invest in expansion at a higher rate than it had been.
The company expects about $654 million in proceeds from the deal, which includes $250 million in private placements from institutional investors, including Fidelity and clients of Starboard Value LP, the hedge fund behind the Starboard Value Acquisition Corp. SPAC that’s merging with Cyxtera.
BC Partners and Medina Capital, the two private equity firms that formed Cyxtera after acquiring the colocation business of what was then called CenturyLink (now Lumen) and several security and analytics companies in 2017, will roll their entire equity stakes into the combined firm.
The merger is expected to close in mid-2021, after which the combined company will start trading on the Nasdaq under the ticker symbol CYXT.
Nelson Fonseca and Manny Medina, Cyxtera’s CEO and chairman, respectively, will remain in their current roles.
The official merger announcement Monday morning came after The Wall Street Journal reported on Sunday that the deal was close to being finalized.
In the announcement, Cyxtera said it made $690 million in revenue and $213 million in adjusted EBITDA in 2020.
The company said it operates 61 data centers in 29 markets around the world, serving more than 2,300 enterprises, service providers, and government agencies.
Cyxtera was formed as a combination of a global colocation business and four security software companies. But it spun off its security business in 2019, saying cybersecurity company valuations were so high that investors would benefit the most from making the security firm independent.
Last year, when the pandemic made the future of the traditional IPO market uncertain, investors became more eager than ever to invest in SPACs. Referred to as “blank-check companies,” they raise funds and go public before merging with a real business. Merging with a SPAC is a much quicker and easier way for a company to raise funds on the public markets than going through the traditional public-offering process.