Blackstone interested in KIO Networks’ data centers, sources say
20 October 2020
Blackstone Group [NYSE:BX] is interested in bidding for KIO Networks’ data centers, said two sources familiar with the situation.
KIO to date has asked for bids for the entire company, which comprises both data centers and its information technology (IT) services business, said the second source and a third source familiar.
Non-binding offers for KIO, officially known as SixSigma Networks Mexico, were received at the end of August, according to a 12 October report by Inframation, a sister publication of Mergermarket. Goldman Sachs is running the auction, as reported.
KIO, which is owned by Tresalia Capital, the family office of one of Mexico’s wealthiest women, Maria Asuncion Aramburuzabala, is being marketed off roughly USD 130m in EBITDA, noted Inframation.
The Mexico City-based company’s data centers generate 60% of its EBITDA, while the IT services division, 40% of which is tied to government contracts, makes up the balance, said the third source.
From 2012 to 2018, KIO won at least 89 government tenders to provide IT services to federal entities and agencies worth MXN 19.7bn (USD 923.3m), according to data compiled by citizen auditing platform ContratoBook.
The IT services business’ high reliance on government contracts makes it less attractive to some investors as it is dependent on the fiscal and administrative priorities of the government in power, said the second and third source.
In May 2014, for example, a new policy was instituted requiring any outsourcing of data centers by government entities to be pre-approved by the Presidency’s Digital Government Unit.
The New York-based investment firm Blackstone already holds investments in Mexico’s telecommunications sector through its portfolio company Phoenix Tower International (PTI), which last year purchased some local tower sites through its acquisition of a 500-tower portfolio from Uniti Group [NASDAQ:UNIT], as reported.
Global investment firms including KKR [NYSE:KKR] and Macquarie [ASK:MQG] looked at KIO but did not table bids, said the third source.
Data centers are physical facilities that house critical applications and data. Growing internet usage in Mexico means demand for data centers will continue to increase, providing a steady stream of revenue for financial investors, said the third source.
About 70.1% of Mexico’s 119.5m people use the Internet, compared with only 57.4% back in 2015, according to national data-gathering agency Inegi.
KIO owns 40 data centers in Mexico, the Dominican Republic, Panama, Guatemala, and Spain, according to Inframation. In a 2018 bond prospectus, the company claimed it controlled 58% of Mexico’s data-center market by operational space, citing research from 451 Research.
Equinix [NASDAQ:EQIX] has shown interest in acquiring KIO’s data centers, Inframation reported on 12 October. In October 2019, the Redwood City, California-based company acquired a majority stake in three data centers of Axtel [BMV:AXTEL], the telecommunications unit of Mexican industrial conglomerate Grupo Alfa [BMV:ALFAA], for USD 175m in an all-cash transaction, as reported.
The Axtel deal represented 13x-14x EBITDA per data center, said the third source. In May, Telefonica [BME:TEF] agreed to sell a handful of data centers at closer to 16x EBITDA, or about USD 19m per megabyte, the source added.
Multiples for data centers vary depending on their capacity and technology, said the third source.
Madrid-based Telefonica announced it agreed to sell 11 data centers in Argentina, Brazil, Chile, Spain, Mexico, Peru, and the US to the pan-European infrastructure fund manager Asterion Industrial Partners, for EUR 550m (USD 644.5m).
KIO was founded in 2002. It was awarded its first government contract in 2004 and started expanding to other Latin American countries in 2012, according to the 2018 bond prospectus.
Throughout its history, the company has bolstered its business through acquisitions. In 2013 it acquired a majority stake in MasNegocio, a local company offering enterprise application solutions; and Sm4rt Security Services. A year later it acquired redIT, a cloud-computing and data center services company.
Macquarie and KIO declined to comment. Blackstone and KKR did not respond to requests for comment.
