Stifel downgrades Digital 9 Infrastructure following 'forced' Verne Global sale
As the deal is not expected to close until the first quarter of 2024, Stifel's Sachin Saggar said there remains execution risk.
On Monday (27 November), the DGI9 board said it had entered into adefinitive agreement for its stake in the company for approximately £465m, representing a 5% discount to end-June carrying value.
The $575m purchase price is comprised of a $440m cash sum split between $415m on closure of the Verne transaction and $25m deferred consideration, with an up to $135m potential earn-out, payable subject to Verne Global achieving run-rate EBIDTA targets for the 2026 financial year.
DGI9 said the sale enables the trust to deleverage its balance sheet by paying down approximately £300m of its revolving credit facility.
In a research note, Stifel analyst Sachin Saggar said that given the trust's stretched balance sheet, it was important that «some form of deal took place», but argued the pricing and structure is not «as good as expected».
Digital 9 Infrastructure launches strategic review following £456m Verne Global sale
He noted that an equity consideration of up to £456m is below the indicated price of £500m and below the value of £480m at the end of June.
«Perhaps we could call this a volcano discount, but nevertheless the seller could not walk away and so the buyer held the strongest hand in negotiations,» he said.
According to Saggar, the «disappointing aspect» of the deal is the performance related deferred consideration of up to £107m, which will not be assessed until December 2026 and potentially not paid earlier than 2027.
«No details of how strict this performance target is has been provided, which means it is not possible to assess the probability of this being paid,» he added.
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