Case Studies

The Borrower

Founded in 2001, this privately-held company is a leading provider of managed services and co-location services in the Southeastern United States. The company operates numerous datacenters providing best-of-breed IT infrastructure solutions with hardened physical infrastructure, the highest level of security, and a complete managed services portfolio. The company maintains and protects its customers’ mission-critical IT systems and applications, enabling businesses to reduce operating costs, lower risk of downtime, and focus on their core competencies.

The Industry

The managed services and co-location market emerged in response to the rapid growth of the Internet, which has become an essential tool for businesses in today’s economy. The co-location market and interconnection industry saw enormous growth in square footage during the late 1990’s due to the anticipation of tremendous growth in Internet traffic. Whereas the data center build outs of the late 1990’s were being driven by telecom carriers, today’s managed services and co-location markets are being driven by enterprises with complex computing requirements. Many businesses are recognizing the high cost and inefficiency of managing IT themselves, including the difficulties of upgrading technology, training and retaining skilled personnel with domain expertise, and matching IT costs with actual benefits. As such, the data center market is again at a point of imbalance; demand for data center space is outstripping supply. Since 2002, while data center demand has increased approximately 85%, supply has increased approximately 12% over the same period, causing utilization rates to increase from under 30% to over 50% during the same period.

The Challenge

As a result of the solid fundamentals taking shape in the managed services and data center arena, many private equity investors have shown a strong appetite to invest in this sector. Additionally, given the supply and demand imbalance and trend towards outsourcing, many businesses within the sector have been presented with significant opportunity to expand.

Given these dynamics, the existing shareholders and management of the company examined their business plan and decided where they wanted to take the business and how to get there. Recognizing that a significant amount of additional capital and institutional expertise would be necessary to take advantage of the current industry dynamics and take the business to the next level, the existing shareholders opted to pursue a transaction that would provide not only a liquidity event, but also a substantial amount of “dry powder” to expand existing facilities and build new facilities in underserved markets. To fulfill their vision, the company needed a financial services partner with a comprehensive product offering that could provide a highly customized financing solution.

The Solution

With a deep knowledge of the industry and the needs and challenges facing the company, CapitalSource, in conjunction with the company’s management and prospective buyers, designed a one-stop debt solution to fund the initial acquisition and provide committed capital to fund future growth opportunities. The credit facility included first lien and second lien tranches as well as a customized delayed draw capital expenditure line to support future expansion projects and tuck-in acquisition opportunities.

CapitalSource led all aspects of the transaction. Our industry expertise, comprehensive product offering, and commitment to being a trusted, constructive, and long-term partner were key to completing the transaction. Furthermore, we successfully syndicated of a portion of the facility to a number of other notable financial institutions. 

CASE STUDY WRITTEN: 11/08


Header photo credit: ( c ) 2008, The Washington Post. Photograph by Nikki Kahn. Reprinted with Permission.