Saturday, November 25, 2017

CyrusOne buys stake in GDS for $100m in pursuit of Chinese cloud business

Chinese data centre operator’s customers include local big providers such as Alibaba Group, Tencent and Baidu.

US-based data centre REIT CyrusOne (NASDAQ: CONE) has invested $100m in the acquisition of an 8% stake in GDS Holdings Limited (NASDAQ: GDS) as the company seeks to ramp up its efforts to expand its cloud business in the Chinese market.

As a result of the deal, CyrusOne president and chief executive officer Gary Wojtaszek will join the GDS Board of Directors.

In addition to the transaction, the two companies have also stroke a partnership which will result in a combined effort to market and sell data centre space and related services in both the US and China.

GDS’ portfolio today amounts to 17 self-developed carrier-neutral data centres in service and under construction totalling 1.2 million colocation sqf in some of China’s Tier 1 cities, including Beijing, Shanghai, Shenzhen, Guangzhou, and Chengdu.

The company has more than 450 customers, including Alibaba Group, Tencent and Baidu, three of the largest internet and cloud service providers in China. In comparison, CyrusOne’s more than 1,000 customers include some of the world’s largest cloud operators.

Financially, GDS has reported a revenue of approximately $50m and Adjusted EBITDA of approximately $15 million in the second quarter of this year. Revenue and Adjusted EBITDA grew 42% and 112%, respectively, on a local currency (RMB) basis in the second quarter of 2017 compared to the same period in 2016.

The GDS backlog as of the end of the second quarter totaled approximately $163m in annualised revenue, equivalent to more than 80% of second quarter 2017 annualised GAAP revenue.

As for CyrusOne, Q2 2017 was also positive on a revenue basis, with the company reporting a 28% growth over Q2 2016, amounting to $166.9m. Net income was $800,000 negative, howerver, adjusted EBITDA was up 30% to $90.8m.

CyrusOne’s Wojtaszek said: “This strategic partnership provides a compelling value proposition for both companies’ customer bases as the enhanced collective capabilities of CyrusOne and GDS will enable them to meet their data centre resource needs in the world’s two largest centres of economic activity.

“We are excited about our investment in GDS and this partnership between two of the fastest-growing data centre companies and recognized leaders in serving the hyperscale and enterprise markets in the US and China.”

William Huang, chairman and chief executive officer of GDS, said: “Both GDS and CyrusOne are committed to providing comprehensive solutions to global cloud and enterprise companies, and we believe that together we can offer better outcomes for our nearly 1,500 combined customers.

“The investment by CyrusOne is a meaningful source of capital to fund development projects and offer timely, customized deployments for our customers as they capitalise on accelerating growth opportunities.

“We believe that this strategic relationship will enable both companies to meet strong market demand and generate attractive returns for our shareholders.”

J.P. Morgan acted as financial advisor to CyrusOne and Sullivan & Cromwell LLP served as legal counsel, and RBC Capital Markets acted as financial advisor and sole placement agent to GDS in connection with the $100m private placement of equity. Simpson Thacher & Bartlett LLP served as legal counsel to GDS.