Reference is to colocation or data centers.
They usually generate two types of revenues: rental revenues and services revenue.
Question is, if you’re modeling an LBO of such company, how do you go about valuation (entry and exit assumptions)? Would you compute the rental NOI and value based on cap rate, and value the services segment on say an EBITDA multiple basis? Or would you apply an EBITDA multiple to the whole thing?
What’s done in practice?
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Use an OpCo / PropCo valuation framework. Look at this activist pitch for Macy's done by Starboard Value:
https://www.10xebitda.com/wp-content/uploads/2016/11/Starboard-Macys-Pr…
NOI / Cap rate based valuation for the PropCo, and traditional EBITDA multiple valuation for the OpCo. If you can spin off / sell-off the PropCo with a sale leaseback, should be accretive to your modeled returns.
Thanks. I get the value creation opportunity in doing an opco propco structure, but I'm also curious, in practice, for PEs that have bought these kinds of businesses like data centers and so on, is that also how they do the valuation - separately?
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