Exclusive - Private equity firms target Telecity in possible 2.2 billion pound deal: sources

By Pamela Barbaglia and Anjuli Davies

LONDON (Reuters) - British data centre provider Telecity (TCY.L) is being circled by private equity funds, sources familiar with the matter said, amid an increase in takeover interest in the FTSE 250 company since the departure of its chief executive in October.

Telecity, which will announce its annual results on Wednesday, has a market capitalization of 1.73 billion pounds and would command a premium of at least 25 percent valuing it at 2.2 billion pounds, the sources told Reuters.

The company has been working with U.S. bank Goldman Sachs on a "strategic review" following the sudden resignation of chief executive Michael Tobin which sparked takeover interest among U.S. and European private equity funds, said two of the sources who asked not to be named because the matter is private.

A spokesman for Telecity declined to comment while representatives at Goldman Sachs (GS.N) were not immediately available for comment.

The company, which has yet to fill the CEO's role and has since been run by Chairman John Hughes, is an attractive target because of its growing revenues and sticky client base, one of sources said.

"There is a good chance that the management team would listen to interesting offers," one of the sources said, cautioning that take-private deals in the UK are often difficult to execute.

Telecity's revenue climbed 9.3 percent to 174 million pounds in the first half of 2014 with adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) growing 10.7 percent to 81.6 million pounds.

Telecity operates data centres in the UK, Ireland, France, Germany, Italy and Sweden, and competes with Dutch firm Interxion (INXN.N).

The two companies are seen as potential merger candidates, two sources said, adding that private equity funds could use Telecity as a platform to acquire Interxion.

A possible scenario could see large U.S. buyout funds team up with Tobin, who led the group for a decade and has enough expertise to run the company as an independent player, one of the sources said.

Last year, European private equity firm Apax acquired two listed technology firms - Exact Software in the Netherlands and Nordic IT services giant Evry.

In the UK, though, such take private deals have been more difficult since 2011 changes to takeover legislation when a 'put up or shut up' rule was put in place, whereby potential bidders have 28 days to either make a bid or walk away.

The maths can also be a sticking point, with takeover buyers generally expected to pay a premium of about 30 percent to the pre-bid share price.