CyrusOne Inc. has announced the formation of a new strategic partnership with the execution of a commercial agreement with GDS Holdings Limited, a leading developer and operator of high-performance, large-scale data centers in China. With this new partnership, CyrusOne and GDS will work together to market and sell data center space and related services in both the United States and China, the two biggest economies in the world, with each already having a significant concentration of hyperscale companies.

In addition, CyrusOne will purchase newly issued unregistered ordinary shares equivalent to 8.0 million American depository shares (“ADS”) at a price per ordinary share equivalent to $12.45 per ADS, a 4% discount to the most recent closing price, for a total investment of $100 million. Each ADS is equivalent to eight ordinary shares. GDS intends to use the proceeds to fund development projects across key markets to provide capacity to sustain its strong sales momentum. These projects are expected to generate attractive development yields that meet or exceed CyrusOne’s mid-teens target. CyrusOne president and chief executive officer Gary Wojtaszek will join the GDS Board of Directors.

“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 center resource needs in the world’s two largest centers of economic activity,” said Wojtaszek. “We are excited about our investment in GDS and this partnership between two of the fastest-growing data center companies and recognized leaders in serving the hyperscale and enterprise markets in the United States and China.”

“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,” said William Huang, chairman and chief executive officer of GDS. “The investment by CyrusOne is a meaningful source of capital to fund development projects and offer timely, customized deployments for our customers as they capitalize 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.”

GDS has developed and operated high-performance, large-scale data centers for 16 years and is the market leader in China. The company has 17 self-developed carrier-neutral data centers in service and under construction totaling 1.2 million colocation square feet strategically located in China’s primary economic centers, including Beijing, Shanghai, Shenzhen, Guangzhou, and Chengdu. GDS has more than 450 customers, including Alibaba Group, Tencent, and Baidu (collectively “BAT”), three of the largest internet and cloud service providers in China. The company generated revenue of approximately $50 million and Adjusted EBITDA of approximately $15 million in the second quarter of 2017. 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 $163 million in annualized revenue, equivalent to more than 80% of second quarter 2017 annualized GAAP revenue.

The transaction is expected to provide several key benefits to CyrusOne, including the following:

Access to More than 450 GDS Customers, Including Key Hyperscale Companies: CyrusOne will coordinate with GDS to market our data centers and related services to more than 450 GDS customers. Among these customers, large internet companies and cloud service providers represent approximately 75% of GDS’s contracted space and a similar proportion of expected new demand in China. The GDS customer base includes the largest hyperscale companies in China, including BAT, with Alibaba Group and Tencent having recently signed strategic partnership agreements with GDS recognizing the company as their preferred data center provider. BAT and other Chinese technology companies are investing billions of dollars in the United States, and CyrusOne’s ability to deliver significant capacity in a cost-effective and time-sensitive manner provides an attractive alternative for these companies as they expand into and within the country.

Enhanced Geographic Reach: Strong and growing demand is driving hyperscale companies and enterprises to expand globally, and CyrusOne’s partnership with China’s leading data center provider having unique local expertise provides our customers with an easy solution customized to meet their needs. Our expanded data center platform provides access to the most important markets in the world’s two largest economies.

Collaborative Knowledge Sharing: CyrusOne and GDS will share knowledge developed over more than 30 years of combined experience building and operating data centers. The companies will exchange best practices around sales and marketing, data center design and construction, supply chain management, customer relationship management, and operations. This will allow them to leverage each other’s core competencies to deliver a compelling, differentiated data center solution.

Capital to Fund Development Projects Expected to Generate Attractive Returns: The cloud market in China is still in an early stage but growing fast, and GDS is experiencing very strong demand from existing and new customers. The investment by CyrusOne in GDS will fund construction of data centers to provide more capacity for further expansion to meet this demand. These projects are expected to generate attractive development yields that meet or exceed CyrusOne’s mid-teens target.

Financial and Legal Advisors

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 $100 million private placement of equity. Simpson Thacher & Bartlett LLP served as legal counsel to GDS.