21Vianet Group (VNET), Warburg Pincus Enter Joint Venture

October 31, 2016 6:27 AM EDT

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21Vianet Group, Inc. (Nasdaq: VNET) and Warburg Pincus announced the two companies have signed a strategic investment agreement (the “JV Agreement”) to form a joint venture and establish a digital real estate platform in China. The JV will be dedicated to pursuing development and acquisition opportunities in the wholesale and built-to-suit segments of China’s data center market.

Pursuant to the JV Agreement, 21Vianet will seed the JV with four existing high-performing IDC assets, valued at over US$300 million, and Warburg Pincus will contribute direct capital and extensive industry network and resources in the real estate sector. Also pursuant to the JV Agreement, 21Vianet will continue to own 51% of the equity interests in the four existing IDC assets while Warburg Pincus will own the remaining 49%. With respect to future projects to be developed by the JV, 21Vianet will initially own 49% of the equity interests and Warburg Pincus will initially own 51% of the equity interests. The transactions contemplated by the JV Agreement are expected to close in multiple tranches in the first half of 2017 subject to the satisfaction of certain conditions.

With strong demand for data center space driven by the exponential growth in data usage and cloud services, the JV will serve as a dedicated vehicle that focuses on wholesale customers and enterprises and an expanded product offering across turn-key data centers, standard modules and built-to-suit solutions. The goal is for the platform to grow to 80,000 to 100,000 cabinets over the next five to seven years.

Mr. Steve Zhang, CEO of 21Vianet, stated, “We are extremely excited to partner with Warburg Pincus, one of the world’s leading private equity firms, and establish a specialized platform to address China’s wholesale data center market. While the Company stays focused on its core retail colocation and cloud services, which are centered on interconnection and an open cloud ecosystem, the JV will help strengthen our IDC competitive advantages through broader product offerings and specialized business solutions. As China’s data center industry moves towards increased specialization and verticalization, we firmly believe that the JV will enable us to effectively capture incremental market opportunities from diverse customers and attract more world-class talent.”

“Combining 21Vianet’s 20 years of experience in data center operations and Warburg Pincus’ rich resources in capital markets, industry network and track record in partnering with leading enterprises in China, the JV represents a strategic alliance to advance the development of data center real estate opportunities in China,” commented Mr. Terry Wang, CFO of 21Vianet. “By separating the capital intensive data center infrastructure layer from the Company’s asset light businesses, we are confident that we will lessen our dependence on Capex, improve our free cash flow, capital structure and with it, overall shareholders’ value.”

Ellen Ng, Managing Director of Warburg Pincus, commented, "Data centers have been one of the best performing real estate asset classes globally and one supported by compelling secular trends in China. We have tracked the sector in China for years and are delighted to collaborate with 21Vianet to form the JV. Our partnership will create significant synergies by combining 21Vianet’s deep industry knowhow and client resources with Warburg Pincus’ international resources, financing channels and industry networks in both the real estate and TMT sectors in China.”



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