Cyxtera today announced that it has entered into an asset purchase agreement (APA) under which Brookfield Infrastructure Partners L.P. (NYSE: BIP, TSX: BIP.UN) and its institutional partners will acquire substantially all of Cyxtera’s assets for $775 million.
The deal with Brookfield is expected to close in the first quarter of 2024.
Associated Data Center Real Estate Transactions
As laid out in a press release, in connection with the APA and the court supervised process, Brookfield will purchase from several landlords the real estate at which seven of Cyxtera’s U.S. data centers are located.
Among the transactions made in connection with the APA is a comprehensive agreement with Digital Realty Trust, Inc. (NYSE: DLR) and Digital Core REIT (SI: DCRU) for Brookfield to acquire the real estate supporting several of Cyxtera’s U.S. data centers.
Separately, Cyxtera has entered into an agreement with its landlord, Digital Realty, to amend the terms of its current leases at three U.S. sites and three international sites, to allow Cyxtera to exit those sites in 2024 while providing a seamless transition for customers.
Lastly, Cyxtera has signed an agreement to sell its business in its Montreal and Vancouver data centers to Cologix.
Cyxtera said the aforementioned transactions with Brookfield will allow it to increase existing facility ownership, while securing expansion opportunities in support of unrelenting customer demand. The company added that the transactions strengthen its data center platform by giving it more control over its cost structure.
Background On Cyxtera
This April, Data Center Frontier's Rich Miller reported that Cyxtera Technologies was reportedly fielding interest from suitors as it sought to reduce its debt load. Data Center Dynamics at that time shared that Cyxtera was exploring options for a sale or capital raise, citing a Bloomberg story that said private equity suitors were studying the company's operations.
Shares of Cyxtera had fallen sharply in value during that timeframe and were trading at 31 cents a share at one point, giving the company a market capitalization of about $55 million, a far cry from the $3.4 billion valuation placed on the company when it went public in 2021 through a merger with Starboard Value Acquisition Corp.
In May, as shares of Cyxtera fell to new lows, DCF reported lenders for the company said they would provide the colocation provider with $50 million in new funding, allowing it more time to arrange a sale or line up new capital. In June, the colocation provider filed for Chapter 11 bankruptcy. After working for months to find a buyer or reduce its debt load, the company decided it would now restructure through a pre-packaged bankruptcy.
The Chapter 11 filing was part of an arrangement with its lenders, who retained the right to gain a controlling equity interest in the company under terms of a restructuring agreement. At the time of the bankruptcy filing, some of the company's lenders committed to provide $200 million in financing to enable Cyxtera to continue operating as it restructures.
Dgtl Infra's Mary Zhang did significant reporting this summer on the story of Cyxtera's existing lease rejections in wake of the bankruptcy filing, as well as charting the company's timeline extension for its bankruptcy-led sale process into late September.
In his prior reporting on Cyxtera's bankruptcy filing, DCF founder and Editor at Large Miller noted, "Since Cyxtera leases many of its data centers, Cyxtera's Chapter 11 filing creates a potential challenge for its landlords. Cyxtera leases space in 15 facilities operated by Digital Realty, representing $61.5 million in annual revenue, or about 1.7 percent of Digital's annual revenue."
'A Favorable Path Forward' for Customers
The full terms of the new APA between Cyxtera and Brookfield Infrastructure Partners have been filed with the U.S. Bankruptcy Court for the District of New Jersey.
“We are pleased to reach this agreement with Brookfield, which represents a favorable path forward for our customers, partners, and employees,” commented Nelson Fonseca, Cyxtera’s Chief Executive Officer. “Throughout our restructuring process, our business has continued to perform well, a testament to our customers’ confidence in our team and our innovative data center platform. This agreement and the changes to the data center portfolio, most importantly our increased facility ownership, will enable us to build on our business momentum and better position Cyxtera for the future.”
The hearing to approve Cyxtera's Chapter 11 plan and transaction with Brookfield is scheduled for November 16, 2023. In addition to court approval, the APA is subject to regulatory approval and customary closing conditions.
Cyxtera's Fonseca concluded, “With Brookfield’s deep global infrastructure expertise, experienced team, and demonstrated track record, we will move ahead with a partner that recognizes the strength of our business and will provide the guidance and resources to drive our next phase of growth. We remain firmly committed to making this transition as seamless as possible for all our stakeholders and we look forward to continuing to serve our customers with the innovative services and high levels of support they have come to expect from Cyxtera.”
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