Earlier this month, GI Partners sponsored a management buyout of Softlayer Technologies, a Dallas-based provider of on-demand data center services. No other information, except why GI felt it made a sparkling addition to its portfolio.
Yesterday, however, Moody’s Investors Service reported that GI and other “private equity investors” acquired more than 70% of SoftLayer at a $500 million enterprise value. Company management will hold the remainder. The buyers also increased the amount of equity they are investing to $250 million, up from the initial $195 million. The deal for Softlayer also reduces a term loan from $190 million to $150 million and eliminates both a $20 million revolving credit loan and a $20 million delayed draw term loan.
Softlayer provides dedicated hosting and managed data center services. In July, it earned $60 million in revenue for the first six months of the year and expects to earn $125 million in all of 2010.
Menlo Park, Calif.-based GI, which manages about $4 billion in capital, has acquired other firms in the data center sector. GI already owns The Planet and Telx and has a minority stake in ViaWest. In fact, Softlayer and The Planet are holding merger talks to create a leading provider of web hosting and cloud computing services, according to Data Center Knowledge.
Moody’s said that Softlayer will remain cash flow negative over the next few years as it adds server capacity in its data center plants. Softlayer’s debt metrics may have been enhanced by the LBO but the sponsors have contributed “incremental equity capital” and the lack of committed external credit facility may constrain the company’s liquidity in the future, Moody’s said.
Officials for Softlayer, The Planet and GI could not be reached for comment.