IRON MOUNTAIN INCORPORATED (NYSE:IRM) Files An 8-K Entry into a Material Definitive Agreement
ME Staff 8-k
IRON MOUNTAIN INCORPORATED (NYSE:IRM) Files An 8-K Entry into a Material Definitive AgreementItem 1.01. Entry into a Material Definitive Agreement.
On December11, 2017,IRM Data Centers Expansion LLC, our indirect, wholly-owned subsidiary, or Buyer, entered into a Purchase Agreement, or the Purchase Agreement, with IO Data Centers, LLC, or IODC, the Sellers referred to therein,Innovation Holdings, LLC, solely in its capacity as a representative of the Sellers, or the Sellers Representative, and, solely with respect to Articles 1, 10 and 11 of the Purchase Agreement, us, as a guarantor, to purchase the United States operations of IODC, a colocation data center services provider, and its United States subsidiaries. Upon the terms and subject to the conditions of the Purchase Agreement, at the closing, or the Closing, of the transactions contemplated by the Purchase Agreement, or the Acquisition, Buyer will acquire, directly or indirectly, all of the outstanding equity interests of IODC for an aggregate purchase price of $1,315,000,000 in cash, plus up to $60 million based on certain operational and financial metrics, subject to certain adjustments as set forth in the Purchase Agreement, or the Purchase Price. The payment of the Purchase Price is guaranteed by us to a customary guaranty.
to the Purchase Agreement and prior to the Closing, the Sellers and certain of their affiliates will undergo a corporate restructuring, or the Restructuring, such that following the Restructuring and at the Closing Buyer will acquire IODC and its subsidiaries utilized in the operation of IODC’s United States data center business.
The Purchase Agreement contains customary representations, warranties and covenants, including, among others, covenants requiring that the IODC business be operated in the ordinary course of business from the date of the Purchase Agreement until the Closing. In addition, in connection with the Acquisition we will obtain a representation and warranty insurance policy that will provide coverage for certain representations and warranties in the Purchase Agreement, subject to a retention amount, exclusions, policy limits and certain other terms and conditions.
The Acquisition is subject to customary closing conditions, including, among others, the receipt by Buyer of certain required consents, completion of the Restructuring and entry into certain ancillary agreements. The Purchase Agreement is not subject to a financing condition.
The Purchase Agreement also contains customary termination rights for the Buyer and the Sellers Representative, including the option of either party to terminate the Purchase Agreement if the Acquisition has not closed by February28, 2018.
The foregoing description of the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Purchase Agreement, a copy of which will be filed by amendment as Exhibit2.1 to this Current Report on Form8-K, or this Form8-K, and incorporated herein by reference.
Item 7.01.Regulation FD Disclosure.
On December11, 2017, we issued a press release announcing the Acquisition. A copy of this press release is furnished as Exhibit99.1 to this Form8-K.
Item 8.01.Other Events.
Material United States Federal Income Tax Considerations
We are filing as Exhibit99.2 (which is incorporated by reference herein) a description of the material United States federal income tax considerations relating to the our qualification and taxation as a real estate investment trust for U.S. federal income tax purposes, or REIT, and the acquisition, ownership and disposition of our stock. This description contained in Exhibit99.2 replaces and supersedes prior descriptions of the federal income tax treatment of us and our stockholders to the extent they are inconsistent with the description contained in this Form8-K.
Risk Factors
Our business faces many risks, a number of which are described under the caption “Risk Factors” in our Annual Report on Form10-K, or our Annual Report, and the Acquisition may subject us to certain risks that are described below. The risks so described may not be the only risks we face. Additional risks of which we are not yet aware, or that we currently believe are immaterial, may also materially and adversely impact our business operations or financial results. If any of the events or circumstances described in the risk factors contained in our Annual Report or described below actually occur, we and our businesses, financial condition or results of operations could suffer, and the trading price of our debt or equity securities could decline. Our current and potential investors should consider the following risks and the information contained under the heading “Cautionary Note Regarding Forward-Looking Statements” in our Annual Report and under the heading “Forward-Looking Statements” in our Quarterly Report on Form10-Q for the fiscal quarter ended September30, 2017 before deciding to invest in our securities.
As a result of the Acquisition and recent legislative efforts relating to federal tax laws, the following risk factors are intended to supplement the risk factors contained under the caption “Risk Factors” in our Annual Report.
Risks related to the acquisition and integration of IODC
The Acquisition will subject us to liabilities that may exist at IODC or may arise in connection with the consummation of the Acquisition.
Our acquisition of IODC will subject us to liabilities (including tax liabilities) that may exist at IODC or may arise in connection with the consummation of the Acquisition, some of which may be unknown. Although we and our advisors have conducted due diligence on the operations of IODC, there can be no guarantee that we are aware of any and all liabilities of IODC. These liabilities, and any additional risks and uncertainties related to the Acquisition not currently known to us or that we may currently deem immaterial or unlikely to occur, could negatively impact our future business, financial condition and results of operations.
The price of our common stock and our results of operations after the Acquisition may be affected by factors different from those currently affecting the price of our common stock and our results of operations.
IODC’s business is different in certain ways from ours, and the price of our common stock and our results of operations after the Acquisition may be affected by factors different from those currently affecting the price of our common stock and our results of operations. The price of our common stock may fluctuate significantly following the Acquisition, including as a result of factors over which we and IODC have no control. Current stockholders may not wish to continue to invest in our common stock if the Acquisition is consummated or for other reasons may wish to dispose of some or all of their shares of our common stock. If, following the consummation of the Acquisition, there is selling pressure on our common stock that exceeds demand at the market price, the price of our common stock could decline.
We will need additional debt financing, which may not be available on favorable terms, if at all, in order to consummate the Acquisition.
We currently anticipate that we will need to raise additional debt to consummate the Acquisition. Such additional financing may not be available on favorable terms, if at all. If we are unable to obtain sufficient financing and consummate the Acquisition, we may be subject to significant monetary or other damages under the Purchase Agreement.
In connection with the Acquisition, we will incur significant additional indebtedness, which will increase the related risks we now face, could adversely affect our financial health, could prevent us from fulfilling our obligations under our various debt instruments and may limit our ability to pursue our growth strategy.
We currently have a significant amount of indebtedness, and we expect to incur significant additional indebtedness in connection with the Acquisition. As a result, we will be subject to increased risks associated with
debt financing, including an increased risk that our cash flow could be insufficient to meet required payments on our debt.
Our substantial indebtedness and the restrictive covenants in our debt agreements could have important consequences on our business and to current and potential investors. These risks include:
Our due diligence of IODC may have failed to identify key issues that could have an adverse effect on our performance and financial condition.
Before executing the Purchase Agreement, we undertook a period of due diligence for the purpose of negotiating the terms of the Acquisition. Although we decided to proceed with the Acquisition following that due diligence exercise, there is a risk that the due diligence undertaken was insufficient or failed to identify key issues. Furthermore, after implementation of the Acquisition, we will be subject to any unknown liabilities of IODC which could have an adverse effect on our performance and financial condition.
If the Acquisition is consummated, we may be unable to successfully integrate IODC’s operations or realize other benefits of the Acquisition.
We entered into the Purchase Agreement because we believe that the Acquisition will be beneficial to us. Achieving targeted benefits of the Acquisition will depend, in part, on our ability to realize the anticipated benefits from integrating IODC’s business with ours. To realize these anticipated benefits,IODC’s business must be successfully integrated. The failure to integrate successfully and to manage successfully the challenges presented by the integration process may result in our not fully achieving the anticipated benefits of the Acquisition.
Potential difficulties that may be encountered in the integration process include the following:
35,841
Income (loss) from operations
21,424
(6,608
)
28,032
Total other expense-net(1)
84,501
84,501
Net loss
$
(63,077
)
$
(6,608
)
$
(56,469
)
Adjusted EBITDA(2)
$
59,339
FortheninemonthsendedSeptember30,2017
(Inthousands)
IOData Centers,LLC
IODCOperations notacquired
IOData Centers,LLC
(Asadjusted)
Total revenues
$
109,346
$
5,288
$
104,058
Cost of services
63,485
6,648
56,837
Gross profit (loss)
45,861
(1,360
)
47,221
Total operating expenses
20,034
20,034
Income (loss) from operations
25,827
(1,360
)
27,187
Total other expense-net(1)
66,376
66,376
Net loss
$
(40,549
)
$
(1,360
)
$
(39,189
)
Adjusted EBITDA(2)
$
50,896
AsofSeptember30,2017
(Inthousands)
IOData Centers,LLC
IODCOperations notacquired
IOData Centers,LLC
(Asadjusted)
Total assets(3)
$
723,659
$
115,320
$
608,339
(1)Total other expense-net for the year ended December31, 2016 and the nine months ended September30, 2017 primarily consists of interest expense and finance restructuring costs. These expenses are associated with IODC’s overall enterprise capitalization structure.
(2)Adjusted EBITDA is defined as net loss before interest expense, income taxes, depreciation, amortization, other expense-net and loss on disposal of assets. Adjusted EBITDA excludes both interest expense and income taxes. These expenses are associated with IODC’s capitalization and tax structures, which we do not consider when evaluating the operating profitability of core operations. Adjusted EBITDA does not include depreciation and amortization expenses in order to eliminate the impact of capital investments, which we evaluate by comparing capital expenditures to incremental revenue generated and as a percentage of total revenues. Adjusted EBITDA also does not include components of other expense-net as we do not believe items within other expense-net are indicative of the core operating results of IODC. Adjusted EBITDA should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP, such as gross profit (loss).
The following table reconciles net loss to Adjusted EBITDA for the year ended December31, 2016 and for the nine months ended September30, 2017 for IO Data Centers,LLC (As Adjusted). For purposes of this presentation, we have not attributed any operating expenses or other expense-net of IODC to the IODC Operations Not Acquired.
IODataCenters,LLC(Asadjusted)
(Inthousands)
Fortheyearended December31,2016
Forthenine monthsended
September30,2017
Net loss
$
(56,469
)
$
(39,189
)
Add/(deduct):
Interest expense
78,014
49,593
Provision for income taxes
Depreciation and amortization
29,896
23,471
Other expense-net
6,487
16,783
Loss on disposal of assets
1,411
Adjusted EBITDA
$
59,339
$
50,896
(3)We will not assume any debt of IODC in the Acquisition, and we do not expect any assumed IODC liabilities to be material. As such, we are only presenting IODC’s total assets on an “As Adjusted” basis for the nine months ended September30, 2017.
Supplemental information
For the year ended December31, 2016 and the nine months ended September30, 2017, essentially all revenue from IODC’s operations we expect to acquire was associated with rental activities. For the year ended December31, 2016, utilities expenses for IODC’s operations we expect to acquire were $20.9million, property operating expenses, including property taxes, were $13.8million and people costs were $7.3million. For the nine months ended September30, 2017, utilities expenses for IODC’s operations we expect to acquire were $15.2million, property operating expenses, including property taxes, were $10.7million, and people costs were $7.8million.
Item 9.01.Financial Statements and Exhibits.
(d) Exhibits
2.1
Purchase Agreement, dated as of December11, 2017, by and among IRM Data Centers Expansion LLC,IO Data Centers, LLC, the Sellers named therein, the Sellers Representative and, with respect to Articles 1, 10 and 11,Iron Mountain Incorporated.*
8.1
Opinion of Sullivan& Worcester LLP as to tax matters. (Filed herewith.)
23.1
Consent of Sullivan& Worcester LLP (contained in Exhibit8.1).