As Stock Price Slumps, Cyxtera Reportedly Mulling Capital Raise or Sale

Data center provider Cyxtera Technologies is reportedly fielding interest from suitors as it seeks to reduce its debt load. DCD shares that Cyxtera is exploring options for a sale or capital raise, citing a Bloomberg story that says private equity suitors are studying the company's operations.    

Shares of Cyxtera have fallen sharply in value in recent weeks and were trading at 31 cents a share at midday Friday, giving the company a market capitalization of about $55 million. That's 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.

As with all sale rumors citing unnamed but informed sources, these reports should be taken with a grain of salt, especially given that Cyxtera was previously the focus of buyout rumors in April 2022. 

Despite the challenging interest rate environment, Cyxtera has continued to make steady progress in its core business, improving net bookings and the fill rates for its data center space. It recently launched a self-service platform for provisioning racks, a sign of the continuing cloudification of the colocation business.   

A Global Colocation Network

Cyxtera Technologies was formed in 2016 when Medina Capital, led by former Terremark CEO Medina, teamed with investors including BC Partners to buy the data center portfolio of CenturyLink for $2.15 billion. It was one of several data center players seeking to build a colocation business atop a portfolio of data centers spun off by telecom companies.

Cyxtera operates a global network of 60 data centers and supports 2,300 customers and had $746 million in revenue in 2022. The company says it is "actively attempting" to renegotiate long-term debt agreements that come due in April 2024 and May 2024. 

On March 14 Cyxtera entered into an agreement to modify its $120.1 million revolving credit facility, extending the maturity date from November 1 until April 2, 2024. The company has total debt of about $2 billion, including $1.1 billion in capital leases, $865 million in debt maturing May 2024, and the revolving debt agreement.

Citing its debt discussions, Cyxtera canceled its fourth quarter 2022 earnings conference call and said it is not providing guidance for 2023. That led several securities analysts to downgrade the stock. 

Over the last month, Cyxtera has also seen the departure of several executives and directors:  

• March 22: Cyxtera reported the departure of Chief Operating Officer Randy Rowland, who was part of the founding team of Cyxtera, and prior to that an executive with Terremark and Medina Capital.
• March 27: Jeff Smith, the founder and CEO of Starboard Value, resigned from the Cyxtera board of directors, effective immediately. Smith had been the chairman of Starboard Value Acquisition Corp. the special purpose acquisition corporation (SPAC) that acquired Cyxtera and took it public in a 2021. Cyxtera said in an SEC filing that "Smith's resignation was not due to any disagreement with the company."
• March 28: Cyxtera discloses to the SEC that Melissa Hathaway and Michelle Felman had resigned as members of the Board of the Company, effective immediately. Hathaway was a cybersecurity expert, and Felman was an advisory director for Investcorp Real Estate. Cyxtera said that neither resignation was due to any disagreement with the company.

In its SEC filings, Cyxtera has been clear that if it cannot extend or refinance its debt, it could be forced to "consider all strategic alternatives." The interest rate on Cyxtera's loans is tied to LIBOR (London Interbank Offered Rate), a global benchmark for floating interest rate assets, along with the newer SOFR (Secured Overnight Financing Rate) standard. LIBOR has risen from 0.3 % in October 2021 to 5.4% this month.

The higher interest rate environment has boosted Cyxtera's borrowing costs, complicating its path to profitability. In early 2022, prior to the interest rate hikes, Cyxtera said it expected to generate positive net income in 2025. In its most recent SEC 10K filing, it has pushed that target date back to 2030.

Self-Service Platform Debuts

Cyxtera reported a net loss of $355 million for the year ended December 31, 2022 including a non-cash goodwill impairment charge of $153.6 million related to the company's reduced market valuation. 

Cyxtera reported its 12th straight quarter of positive net bookings in 4Q 2022, with total revenue gaining 7.8% over the previous year, while occupancy of its data center space rose 3.5% in 2022 to 74.9 percent.   

On March 29, Cyxtera rolled out its online self-service offering, which allows customers to order, and deploy data center services in minutes. without an existing contract in place or the need to engage in a lengthy sales process.

“Our new self-service capabilities give customers everything they like about cloud – the ability to select and provision on-demand services quickly – with the cost predictability, performance, and control they get from running dedicated infrastructure in a data center,” said Mitch Fonseca, Cyxtera’s Chief Development Officer.