On Friday alongside its quarterly earnings report, Cincinnati Bell (NYSE:CBB, news, filings) said that it is considering strategic alternatives for its data center business, CyrusOne. That could mean anything from an IPO in which they keep a stake to an outright sale of the business to a third party, or even that they don’t make any changes at all. But if they do, they’ll definitely be bucking the recent trend of traditional telecommunications companies buying into the colo and cloud business.
There have been many such transactions in the past year and a half: Windstream’s purchase of Hosted Solutions, Verizon’s purchase of Terremark, CenturyLink’s purchase of Savvis, TW Cable’s purchase of NaviSite, and NTT’s recent purchase of NetMagic being a few major examples. Offering cloud services to the enterprise is seen as a vehicle to the future, a way to respond to the loss of access lines and such. In fact, one might even see Cincinnati Bell’s purchase of CyrusOne back in May of ’10 as the earliest such case.
One might have expected Cincinnati Bell to instead buy some cloud technologies to combine with its colocation footprint to serve the enterprise market better. CyrusOne is the fastest growing piece of Cincinnati Bell, having grown 47% to $185M in revenue in 2011 and on track for well over $200M this year. But apparently it is the company’s $2.5B debt that is driving things, and the company’s board of directors is clearly hoping to take advantage of the hot market for data center assets to bring its balance sheet into line. They paid $525M for the original CyrusOne assets back in 2010, and probably expect a good deal more now if they sell it since it has grown substantially both in revenues and in total footprint since then.
So which of those strategic alternatives is most likely to happen? I’m going to have to root for an IPO of about 50% of the company. That way, they raise a chunk of cash for the balance sheet while still keeping the assets mostly in the family and thus staying in the game. The markets currently like such assets, and they’re likely to get similar pricing to what private equity or a strategic buyer might offer.