Information storage and cloud services company Iron Mountain (IRM 38.02, -2.68) trades about 6.6% lower today in reaction to an acquisition announced last night in addition to a 14.5 million share common stock offering and a private placement of nearly $825 million in senior unsecured notes due 2028.
First, last night IRM announced it would acquire the U.S. operations of Phoenix-based colocation data center services provider IO Data Centers LLC for $1.315 billion plus up to $60 million based on future performance and subject to customary adjustments.
With the transaction, IRM will acquire the land and buildings associated with four data centers in Phoenix and Scottsdale, Arizona; Edison, New Jersey; and Columbus, Ohio. The existing data center space in the four owned facilities totals 728,000 square feet, providing 62 megawatts (MW) of capacity with expansion potential of an additional 77 MW in Arizona and New Jersey.
As mentioned, the total consideration comes to $1.315 billion, which does not include up to $60 million of potential additional payments, and represents a multiple of 15x synergized 2018 EBITDA, post integration. While data center acquisitions of this magnitude were not part of the company's previously disclosed 2020 plan, IRM expects the transaction to accelerate its revenue and Adjusted EBITDA growth. Following this transaction and anticipated financing, IRM notes it remains on track to reduce its lease adjusted leverage ratio to about 5x, and lower its dividend payout as a percentage of Adjusted Funds From Operations to 70-75%, assuming annual dividend per share growth of about 4%, all of which are consistent with its 2020 plan.
The acquisition is expected to be modestly accretive to AFFO in 2019. Also, IRM will provide specifics of the impact of the transaction on 2018 full-year expectations when it provides guidance for next year on its fourth quarter/year-end reporting conference call in February 2018.
Then, to fund the deal IRM announced it had commenced an underwritten public offering of 14,500,000 shares of its common stock. In connection with this offering, the company will also grant to the underwriters a 30-day option to purchase up to an additional 2,175,000 shares of its common stock. In addition to funding the IO deal, the company may use proceeds to pay related fees and expenses and, to the extent of any remaining net proceeds, for general corporate purposes (which may include financing the expansion of its adjacent and other businesses through acquisitions and repaying outstanding indebtedness).
This morning, IRM followed the aforementioned public offering of common stock with the announcement of a proposed offering by way of a private placement of a total of $825 million in aggregate principal amount of its senior unsecured notes due 2028.
IRM intends to use the net proceeds from the offering of the Notes, together with the net proceeds of its previously announced offering of its common stock, to finance the purchase price of the acquisition of IO Data Centers, LLC, to pay related fees and expenses and, to the extent of any remaining net proceeds, for general corporate purposes (which may include financing the expansion of its adjacent and other businesses through acquisitions and repaying outstanding indebtedness).
Today’s action is likely just investors discounting IRM on the deal integration. Into the announcement, IRM was holding onto YTD gains of about 24.0% versus the gains of about 18.1% during the same time in the S&P 500.