Deal in Focus: Carlyle sells Itconic to Equinix

Carlyle this week sold Itconic to Equinix for a €215m enterprise value. The deal marks the first divestment for the GP's Carlyle Europe Technology Partners III fund, which launched in May 2014 with a €500m target and hit its €656m hard-cap one year later.

The all-cash transaction represents a "good start for the firm's third European vehicle", a source familiar with the situation told unquote", with the GP reaping a 7x money multiple, equating to a 120% IRR.

According to the source, the technology-focused vehicle is currently 50% deployed and has eight companies in its portfolio, including the acquisition of Prima Solutions announced the week before Itconic's sale. The fund manager is also currently halfway through the fund's investment period, which is due to reach full deployment in June 2020, unquote" understands.

Carlyle reaped a 7x money multiple on the sale of Itconic, equating to a 120% IRR

Itconic's sale was triggered by an unsolicited offer from Equinix, the source says, and the multiple offered convinced the GP to release the asset. This was despite the "relatively short period of time" it had taken the GP to convert the spinout into a stand-alone business.

Carlyle acquired Itconic in May 2015 from French trade vendor Schneider Electric. The business, formerly called Telvent Global Services, was a non-core asset within the French corporate. It originally comprised a consultancy division, which was previously sold to Aurelius Group, and the data centre management division acquired by Carlyle. Following the deal, Carlyle held a controlling stake, while the management team held a minority holding, the source says. Additionally, Carlyle managing director Fernando Chueca took a seat on the board of directors.

As a non-core asset, the company fell outside its former corporate parent's managerial focus and investment strategy. The GP had to create a new commercial platform for the business, including the introduction of an accounting structure and the recruitment of a CFO, legal department and HR department, the source says. Initially, it was challenging for the GP to evaluate the company's financial data, because of the high volume of inter-company transactions, explains the source.

Managing the transition
To facilitate the transition, Itconic paid its former parent for the use of its accounting structure for the first 18 months as part of the transitional service agreements, according to the source. Carlyle also hired Michael Tobin, former CEO of data centre operator Telecity, as a board member and adviser. "It is not easy to buy a business in this situation," says the source, "but the sponsor saw a strategic asset in the company's five data centres and its interconnected structure across the Iberian market."

The carve-out faced some difficulty in securing leverage, due to the lack of a commercial structure in the business outside its parent company, the source said. However, Crescent Capital Group provided a €38m debt package to support the transaction, unquote" understands. The leverage represented two thirds of the capital structure and, at the time of the sale, Itconic has not repaid much of its debt, according to the source. It is understood that the current debt value represents 12% of the capital structure.

Under Carlyle's tenure, the company's EBITDA grew from €10m to €15m and it used much of its generated cash to implement its business plan and expand its data centre. It also used part of the capital to acquire Spanish cloud services operator CloudMas in March 2016. The deal was a strategic acquisition for Itconic, which expanded its team and technologies' portfolio via the bolt-on, but incurred a small financial loss to the business as a result, the source said.

Following the purchase, Itconic generated €55.5m in revenues during the financial year ending in Q2 2017. It currently has 250 employees. Based in Madrid, the business develops carrier-neutral data centres, offering connectivity and cloud-based infrastructure services across the Iberian market, with two centres in Madrid, one in Barcelona, one in Seville and one in Lisbon.

People
The Carlyle Group – Fernando Chueca (managing director).
Itconic – Faustino Jiménez (CEO).

Advisers
Vendor – Torch Partners (corporate finance); Garrigues, Alvaro Lopez-Jorrin (legal); EY (financial due diligence).
Acquirer – Bank Street (corporate finance); Uría Menéndez, Pablo Gonzalez Espejo (legal); Deloitte (financial due diligence).

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