CyrusOne Inc. has announced the execution of a definitive agreement with Quantum Strategic Partners Ltd. (“Quantum”), a private investment fund managed by Soros Fund Management LLC and certain other sellers named therein, to purchase Zenium Data Centers (“Zenium”), a leading hyperscale data center provider in Europe with four properties in London and Frankfurt, the continent’s two largest data center markets. The purchase price is $442 million, reflecting a multiple of 18 times expected annualized Adjusted EBITDA of approximately $25 million from both commenced and signed but not yet billing leases. CyrusOne will also reimburse Zenium for capital expenditures between signing and closing. The transaction is expected to close in the first quarter of 2018, subject to the fulfillment of customary closing conditions including applicable regulatory approvals.

 “This transaction establishes a significant presence for us in Europe’s two largest data center markets and provides a platform to scale to meet the strong demand across the continent,” said Gary Wojtaszek, president and chief executive officer, CyrusOne. “The Zenium team is experienced and well-respected with particular expertise leasing to hyperscale companies, and they have built an outstanding, fast-growing company. The capacity for further growth at their existing locations remains substantial, allowing us to nearly double the size of their business, and we will be able to leverage the European infrastructure to expand within London and Frankfurt and into new markets in an efficient, cost-effective manner.”

“We are thrilled to join the CyrusOne team and believe that their unique capabilities and strong customer relationships, particularly among hyperscale companies, will accelerate growth across the existing European portfolio,” said Franek Sodzawiczny, founder and chief executive officer, Zenium. “We look forward to realizing the benefits of our combined expertise and similar operating philosophies as we continue to broaden CyrusOne’s footprint to capture growing European demand.”

Zenium Overview

Zenium is a leading European large-scale data center developer and operator with four best-in-class data centers serving London and Frankfurt, the two largest data center markets in Europe. Taking into account leases signed but not yet billing, the company has approximately $40 million in annualized contracted GAAP revenue, excluding estimates for pass-through power, representing approximately $25 million in expected annualized Adjusted EBITDA. All signed contracts will have commenced by year-end 2018. Additionally, Zenium has a robust sales funnel, including several late-stage transactions expected to be signed in the coming months.

Upon full buildout, the four properties will consist of more than 260,000 colocation square feet and 49.3 megawatts (“MW”) of power capacity. Approximately 54% of this power capacity, or 26.8 MW, is currently leased.

The two facilities in Frankfurt will be owned by CyrusOne, while the two facilities in London are leased with a remaining weighted average lease term of approximately 40 years, inclusive of renewal options.

Transaction Highlights

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

• Critical first step in international expansion strategy: The acquisition of Zenium is the first step in executing CyrusOne’s previously announced European expansion strategy, adding four properties in London and Frankfurt, the continent’s two largest data center markets. The European data center market is growing rapidly, with reported take-up over the last eighteen months well over double the prior eighteen-month period. Additionally, there has been strong demand for larger deployments, a market segment for which CyrusOne has unique expertise and capabilities. Establishing a significant European presence is a critical step in CyrusOne’s strategic objective of becoming a global provider.
• Accelerated entry into important markets with significant development / lease-up opportunity: With 22.5 MW of critical load available for development and lease-up, the acquisition meaningfully accelerates CyrusOne’s ability to address the increasingly global needs of its existing customers. At the same time, the Company’s expanding footprint will allow CyrusOne to more effectively compete for opportunities from potential customers looking for a single provider with a geographically diverse presence. Given the significant investment to date, CyrusOne expects to deliver this incremental capacity at an estimated build cost of approximately $115 million, or $5.1 million per MW, while the total construction cost per MW across the assets once fully built out is expected to average $6.5-7.0 million per MW, largely in line with CyrusOne’s current all-in build costs.
• Experienced management team with similar operating philosophy and customer focus: The Zenium management team has a proven track record as data center developers and operators with more than 70 years of combined experience. CyrusOne will benefit from this local expertise in site selection and acquisition, data center development, and sales. Similar to CyrusOne, Zenium has a high-quality customer base with a particular emphasis on hyperscale cloud companies. The Zenium portfolio consists of more than 10 customers, with hyperscale companies representing nearly 75% of contracted revenue. More than half of the customers will be new to CyrusOne, including two Fortune 1000 companies. Over 75% of the contracted revenue is generated from investment grade customers, and the weighted average remaining lease term is approximately six years.
• Significant operating leverage: CyrusOne should benefit from significant operating leverage as the combined company expands within London and Frankfurt as well as into new markets, with a new site in Frankfurt already under contract and advanced discussions under way for additional organic site developments in London, Frankfurt, and Dublin. Similarly, as CyrusOne continues to evaluate acquisition opportunities in other markets, the Company expects to be able to leverage the design & construction, sales & marketing, and back-office capabilities of Zenium to generate cost synergies.