Data Center Provider Cyxtera Close to $3.4B Starboard SPAC Merger: WSJ

Cyxtera Technologies is in the final stages of talks about a merger with a special-purpose acquisition company (SPAC), which would value the data center provider at $3.4 billion, The Wall Street Journal reported Sunday, citing sources it could not name.

BC Partners and Medina Capital, the private equity firms that in 2017 acquired the CenturyLink colocation business that became Cyxtera’s global data center platform, plan to roll their stakes into the combined company, the report said. The deal with Starboard Value Acquisition Corp., the SPAC, could be finalized as soon as Monday.

SPACs, which are formed to raise money and go public before merging with real businesses, exploded in popularity last year. They provide an alternative to traditional IPOs for investors – who last year were concerned that the pandemic would slow down traditional public offerings – and for businesses, for whom traditional IPOs are a much more difficult way to raise money.

BC and Medina formed Cyxtera, the largest privately held colocation provider in the US and one of the largest in the world by market share, by combining CenturyLink’s data centers with four cybersecurity and analytics companies they had also acquired, going to market with a rare angle: a colocation company that specialized in security software.

In 2019, however, the company spun off the security business. Its CEO Nelson Fonseca told DCK then that the decision was made to maximize investor benefit at a time when valuations for security companies were sky-high.

Earlier the same year Moody’s downgraded Cyxtera’s credit rating, citing weak revenue and EBITDA growth, high debt, and a need to invest a lot more capital than it had been investing to keep up with competition. Moody’s said it didn’t expect the company to start generating positive free cash flow until the second half of 2021.

There have been signs that data center businesses and digital infrastructure businesses in general are attracting SPAC attention. Private equity firm InterPrivate, for example, recently tapped Gary Wojtaszek and Kevin Timmons, former CEO and CTO, respectively, of the colocation giant CyrusOne, to help with a planned digital infrastructure SPAC.

Earlier this month, a SPAC named Power & Digital Infrastructure Acquisition Corp. went public.