Colocation specialist Cyxtera Technologies (CYXT) is going public via a SPAC merger with Starboard Value Acquisition (SVAC). The transaction, which gives Cyxtera an implied pro forma equity value of $1.8 billion, is about to close. What's Cyxtera's stock forecast after the SVAC SPAC merger? Is the stock a good buy now?
Existing Cyxtera shareholders will own about 58 percent of the combined entity. Cyxtera CEO Nelson Fonseca and Chairman Manuel Medina will continue to lead the combined company.
SVAC and Cyxtera merger date
Voting on the proposed merger deal is scheduled to take place on July 28. The transaction is expected to close immediately after it gets approved by SVAC shareholders. Cyxtera’s common stock and warrants will start trading on the Nasdaq under the ticker symbols “CYXT” and “CYXTW,” respectively.
Cyxtera’s stock forecast after the merger
Currently, Cyxtera stock isn't covered by analysts. However, given that it's a leading data center company, analysts should start covering it soon.
Based on SVAC’s current price, Cyxtera has an enterprise value of $3.4 billion. Based on this value and Cyxtera’s projected total revenue, its valuation multiples for 2021 and 2022 are 4.9x and 4.7x, respectively. Considering that Equinix and Digital Realty Trust are trading at NTM EV-to-sales multiples of 13.0x and 13.6x, respectively, Cyxtera looks undervalued and worth considering.
Cyxtera is a good long-term investment.
Cyxtera is the leading global provider of retail colocation and interconnection services. The company operates 61 data centers in 29 markets worldwide. Cyxtera serves over 2,300 enterprise customers, including Capgemini, Cognizant, and Cloudflare. The company was formed split from CenturyLink’s data center and colocation division in 2017. Cyxtera thinks that its total addressable market size in the U.S. is worth $18.4 billion.
Cyxtera expects to generate sales of $691 million in 2021 and forecasts its sales growing by 4 percent in 2022. Between 2021 and 2025, the company expects its core revenues to grow at a CAGR of 7 percent. Furthermore, the company expects to report an adjusted EBITDA of $220 million in 2021 and an attractive adjusted EBITDA margin of 40 percent in 2025.
As part of its merger with SVAC, Cyxtera will receive around $654 million in gross cash proceeds to pursue its growth plans. The amount includes about $404 million in cash held by SVAC in trust and an additional $250 million in PIPE (private investment in public equity) at $10 per share. The PIPE investors include Fidelity Management & Research and clients of Starboard Value. Overall, the outlook of Cyxtera stock looks promising.
What happens to SVAC after the merger?
SVAC stock will immediately convert to Cyxtera stock after the deal is completed and cease to exist in its SPAC avatar. As a result, SVAC investors will become shareholders in Cyxtera.
What happens to SVAC warrants after the merger?
SVAC warrants will become exercisable 30 days after the completion of the merger. The exercise price of the SVAC warrant, like for other SPAC warrants, is $11.50.