Private equity giant KKR and Global Infrastructure Partners (GIP), a fund under BlackRock, are preparing to select and hire an investment banking team to advance the listing of data center operator CyrusOne, according to individuals familiar with the matter. This IPO is expected to be one of the largest new stock issuance projects next year.
The IPO preparations signal that major global asset managers are betting that secondary market capital remains keen on companies tied to the AI supply chain. CyrusOne plans to use the proceeds from the listing to repay debt incurred from expanding its data centers while also allowing its private equity shareholders to exit and realize returns.
KKR and Global Infrastructure Partners, which later became part of BlackRock, completed the privatization of CyrusOne in early 2022 for $15 billion. Spokespersons for KKR, BlackRock, and CyrusOne all declined to comment.
CyrusOne operates more than 60 large-scale data center campuses across the United States, Europe, and Japan. Investment banks estimate its overall valuation could be comparable to that of data center developer Switch. Insiders note that Switch, which was taken private in 2022 by a consortium of DigitalBridge and IFM Investors, has already selected Goldman Sachs and JPMorgan Chase among others to prepare for its own IPO. Additionally, sources say that Andreessen Horowitz is leading the charge, with Switch currently negotiating a new round of financing with private investors, with an overall valuation including debt of around $50 billion.
Some investment banks estimate that Switch's valuation including debt could exceed $65 billion when it officially goes public, though no final valuation has been determined yet. Earlier this month, Brookfield Asset Management took data center company Csquare public on the U.S. stock market, raising over $1 billion. The company now has a market capitalization of about $3.3 billion, roughly flat with its IPO valuation.
During the low-interest-rate cycle of 2020 to 2021, surging demand for remote work and online entertainment software drove a sharp increase in demand for server rooms, prompting private equity firms to aggressively acquire various data center construction and operation companies. Subsequently, the explosion in demand for AI computing power has once again intensified the data center boom, with private equity and large asset managers launching a new round of deployments. Last year, multiple institutions teamed up to acquire Aligned Data Centers in a deal with an enterprise value of approximately $40 billion.
However, the recent massive capital expenditure commitments by tech giants like Google have raised concerns among secondary market investors. Capital is flowing out of core AI infrastructure targets, including storage chip makers like SK Hynix and SanDisk, while shares of specialized engineering service providers like Comfort Systems are also under pressure.
Investors intending to subscribe to CyrusOne's new shares will also have to confront the inherent operational risks of the data center industry. Late last year, a cooling system malfunction at CyrusOne's data center in Aurora, Illinois, directly caused a disruption of over 10 hours in futures and options trading at the Chicago Mercantile Exchange, marking one of the longest unplanned outages in the history of the derivatives exchange.
On Thursday, CyrusOne officially announced a management change: long-time senior executive John Hatem will succeed Eric Schwartz as Chief Executive Officer.
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