CyrusOne Buys Stake in GDS, Eyes Chinese Cloud Giants

CyrusOne, which already counts most of the world’s largest cloud service providers as its customers, is doubling down on its pursuit of business with Chinese internet and cloud services giants.

The Dallas-based data center provider has agreed to buy a stake in GDS Holdings, one of the largest data center companies in China focused on serving the country’s cloud giants. The investment is part of a broader partnership agreement, under which the two companies will sell each other’s services to their existing and prospective customers.

Together, CyrusOne and GDS “count practically every major cloud company in the US and China as customers,” CyrusOne CEO Gary Wojtaszek, who will be joining GDS’s board of directors, said on a conference call with analysts Wednesday. “Chinese companies are investing billions of dollars in the US, and likewise, practically all of our customers are looking to expand into China, as they recognize the tremendous growth opportunities that China has to offer them.”

CyrusOne is paying $100 million for an 8 percent stake in GDS, which went public last year through an IPO on Nasdaq. CyrusOne’s investment translates to $12.45 per share, which is a 4 percent discount on GDS shares’ closing price Tuesday.

Large internet companies and service providers, including Baidu, Alibaba, and Tencent, take up 75 percent of all contracted GDS data center space, according to CyrusOne. These customers are also responsible for a similar proportion of new data center capacity demand in the country today. Alibaba and Tencent recently made GDS their official preferred data center provider.

GDS estimates it currently has about 35 percent share of the Chinese carrier-neutral data center services market, William Huang, GDS chairman, CEO, and founder, said. It had 25 percent market share before the IPO.

CyrusOne, one of five publicly traded US-based data center REITs, said nine out of 10 largest cloud service providers in the world were its customers as of the end of the second quarter.

This is the American company’s first move into the Chinese market, which by many accounts is nearly impossible to navigate by an outsider without a local partner. CyrusOne can now offer its customers data center options in China’s top markets, including Beijing, Shanghai, Shenzhen, Guangzhou, and Chengdu.

CyrusOne’s current international footprint consists of single sites in London and Singapore, but company executives said they were planning to continue international expansion.

Through another partnership, GDS also has reach into Europe and other key Asian markets. ST Telemedia Global Data Centers, subsidiary of Singapore-based ST Telemedia, which owns a 40 percent stake in GDS, is the top data center provider in India and has strong positions in Singapore and London. Its position in London recently strengthened, after it took full ownership of Virtus, a provider with six data centers in the London market. STT had previously owned a 49 percent stake in Virtus.

The CyrusOne deal expands the international play GDS already has with its own and STT footprint. It creates a platform for providing data center services to GDS customers across top markets in Asia, Europe, and the US, “which is a unique value proposition, highly relevant to today’s customer requirements,” Huang said.

Both CEOs highlighted similarity between the companies’ approach to the marketplace and the makeup of their customer base.

“Among various data center companies in the US and in China, we are most similar in terms of our business model, as well as our customer base,” Huang said.