JSI Capital Advisors - The Monitor

On Monday, October 19^th, Windstream (NASDAQ: WIN) announced that it had reached an agreement to sell its data center business to TierPoint for $575.0 million in an all-cash transaction. Windstream was among the first of the telcos to move into the data center space, acquiring Hosted Solutions for $320m in 2010.

Transaction Facts

TierPoint is a national, leading provider of cloud, colocation and managed services
Combined operations will serve 4,500+ customers with approximately 500,000 sq. ft. of data center capacity in 19 U.S. markets.
Transaction has already been approved by both boards and is expected to close within the next 2-4 months.

Strategic Considerations

Transaction will result in Windstream establishing a continuous, reciprocal, strategic relationship with TierPoint as both companies will sell their products and services to one another’s prospective customers as referral partners.

Along with the spinoff of its network assets into a REIT earlier in 2015, the data center sale is consistent with Windstream’s continuing effort to delever its balance sheet.
Jerry Kent, Chairman and CEO of TierPoint, commented on the transaction and referral partner agreements saying “This is a great strategic fit for TierPoint and our customers.”

JSICA’s Take

Transaction has an EV/REV multiple of 4.3x and an EV/OIBDA multiple of 12.9x.
Transaction will allow TierPoint to continue to grow its data center business, which already consists of 13 data centers across 8 states.
Windstream will continue to generate revenue from data center sales through the referral partner agreement with TierPoint, maintaining a level of exposure to the high growth segment without owning and operating the physical data centers.