Savvis Acquiring Fusepoint: Implications for INAP

Posted on June 2, 2010

Savvis (SVVS) announced yesterday that is acquiring Fusepoint. Fusepoint operates three data centers in Toronto, Vancouver and Montreal. Fusepoint’s three data centers have a total of more than 40,000 sellable square feet, with Toronto the largest at 28,000 sellable square feet.

According to the press release:

“Under the agreement, Savvis will acquire Fusepoint for $124.5 million in cash, subject to a working capital adjustment. For the first quarter of 2010, Fusepoint’s annualized revenue was $47.4 million. Adjusted EBITDA for the first quarter was $3.0 million, or $12.0 million on an annualized basis.”

The above implies a multiple of about 10X EBITDA (though I do not have any balance sheet information for Fusepoint).

It is interesting to do some quick back-of-the-envelope calculations on INAP with the above numbers, with the obvious caveat that the businesses are not entirely similar, and again a balance sheet is lacking for Fusepoint to make more accurate calculations. However, given INAP’s renewed focus on the data center business (an excellent strategy), and the availability of other comps, I think a Fusepoint is a decent comp for INAP.

Doing the numbers: INAP’s annualized revenue is about $240 million with annualized adjusted EBITDA of $40 million (16% margin vs. 25% margin for Fusepoint).

So even giving INAP a 8X EV/EBITDA, as opposed to 10X (my assumption for Fusepoint), leads to a $6.40 per share valuation for INAP. However, I expect INAP’s margins to improve going forward (up to 20%), so I do think INAP will ultimately fetch 10X EV/EBITDA or well over $400 million/$8 per share in an acquisition. I still believe INAP will be acquired in the next 12 to 18 months, one the data center expansion is completed and the company demonstrates traction with the new data centers.

Disclosure: Affiliates of Envoy Global Research, and its principals, own shares in INAP. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.

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