Early next year, if all goes to plan, Vertiv employees will once again be working for a public company – little more than three years after a group of investors took the data center equipment and services company private, buying Emerson Electric’s Network Power business.
Platinum Equity, which led that group of investors, has agreed to sell a portion of its stake in Vertiv to GS Acquisition Holdings, led by the former Honeywell CEO David Cote and sponsored by an unnamed Goldman Sachs affiliate. The deal, valuing Vertiv at $5.3 billion, is expected to close in the first quarter of 2020, at which point Vertiv will start trading on the NYSE under the ticker symbol VRT.
The deal will help Vertiv pay down debt and fund acquisitions the company hasn’t been able to pursue because of its debt load, Vertiv CEO Rob Johnson told CNBC host Jim Cramer in an interview Tuesday morning. Cote sat beside him during the interview.
The deal offered “the opportunity to de-lever now,” Johnson said. “There’s inorganic opportunities that we can’t go after today because of that [debt].”
Vertiv’s current management team will remain in place, and Johnson will continue leading it as CEO after close, while Cote will become its executive chairman, the company said in a statement.
Vertiv is one of the largest vendors of data center power and cooling equipment. Recently, it’s also been expanding in critical-infrastructure services and data center management software.
Most of its revenue comes from traditional enterprise customers, but this year the company has seen strong pickup in sales to hyperscale data center operators – the likes of Facebook, Google, and Microsoft – as a result of a fleshing out of its portfolio to gain the ability to provide full data center solutions rather than individual products, Vertiv VP and general manager Patrick Quirk told DCK in an interview Tuesday.
Further acquisitions, which the GSAH deal is expected to make possible, will serve to continue filling out that portfolio. Areas where Vertiv is likely to look for acquisitions include edge data centers and software, Steve Lalla, executive VP for services at the company, told DCK. The company will look at “places in our portfolio where we think we can do more [via acquisitions] versus doing it ourselves.”
There was nothing more concrete to announce Tuesday, Lalla said, “but now we have a little bit more capital to go make that decision.”
Vertiv’s debt load today amounts to about $3.6 billion, he said. Its 2018 revenue was about $4.3 billion, and its estimated 2020 EBITDA will be about $595 million, the company said in a statement. The GSAH transaction would put Vertiv’s valuation at a nearly 9x EBITDA multiple.
Besides paying down debt and enabling acquisitions, the deal would give Vertiv employees a lot more certainty about the company’s future than they’ve had under Platinum’s control, Johnson told Cramer.
“When you’re private equity, you never know who’s going to buy you next, where you’re going to be,” he said. “Now we all know where we’re going.”
Platinum will retain a nearly 40 percent stake in Vertiv upon the deal’s close, and Platinum partner Jacob Kotzubei will become a Vertiv board member. Other investors, including Cote himself and affiliates of Goldman Sachs, who were not named, will together own about 5 percent, according to the announcement.
In the Cramer interview on CNBC, Cote – who is credited with turning around Honeywell, which struggled when he took the helm in 2002 – said he saw opportunities to expand Vertiv’s profit margins, saying they were 500 basis points behind its peers’ margins.
The company, he said, was in a great position in an industry going through "freakish growth.” Both he and Johnson emphasized that they expected especially high growth in the market for smaller data centers intended to support edge computing for latency-sensitive applications.
Edge computing that supports things like content streaming and cybersecurity is going to “really drive proliferation of a lot of mini, small data centers all over the place,” Johnson said.