Colocation Provider Cyxtera Audits Partners, Stops Some Payouts

On the cusp of going public, the data center colocation provider conducted audits of about 150 partner accounts and stopped payouts on some of the accounts, three Cyxtera partners tell CRN exclusively.

Data center colocation provider Cyxtera Technologies is stopping payments on some accounts as part of what the company is calling an “audit” of partner business, three of the company’s channel partners told CRN.

Three partners said that they were recently told that Cyxtera was conducting an audit as it prepared to go public in order to ensure agent contracts were correct, and the proper documentation was in place for partner involvement on some customer contracts.

Cyxtera confirmed to CRN that it did conduct an audit prior to going public of about 150 channel accounts as part of its channel program development plans. The audit included a mix of longtime channel partners that came to Cyxtera via previous agreements with then-CenturyLink, as well as newer partners, said Xavier Gonzalez, vice president of public relations and corporate communications at Cyxtera Technologies.

Gonzalez said that the “majority” of partners that went through the audit proved to be in compliance with Cyxtera’s current partner agreement. The audit process is now complete.

“The audit was to make sure [partners] were registering their deals, they got the approvals they needed, and that they’re continuing to work with us in coordination with the sales process,” he said.

Cyxtera would not specifically comment on how many partner payouts were stopped as part of the audit but said the correction in payouts to partners that were not in compliance with their agreements were not significant in relation to Cyxtera‘s growing commission payout. The company said it also resumed payouts to partners that disputed the audit findings and provided proper back up documentation.

One Cyxtera partner, who did not want to be identified, said the company recently stopped $250,000 in annual payments on longtime customer accounts.

It’s not uncommon for a supplier to tell a partner that a customer account may no longer qualify for partner payouts, but suppliers typically reach out to their partners to let them know and to try to figure out what can be done to keep the partner getting paid on the account, the partner said.

“That’s a different conversation. What we got was: ‘Oh, by the way, we’re not going to pay you anymore.’ There was never that friendly back-and-forth of, ‘let’s talk through this and come up with a strategy,’” the partner said.

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Cyxtera in February announced plans to go public through a Special Purpose Acquisition Company (SPAC). That deal took place at the end of July after Starboard Value Acquisition Corp. completed its $3 billion acquisition of Cyxtera.

Cyxtera, for its part, received $493 million in cash from the transaction, which the company said is being used to pay down debt and invest in growth.

A second Cyxtera partner, who did not want to be identified, said the audits appear to be centered on reviewing payments on deals that came to Cyxtera by way of CenturyLink, now Lumen Technologies.

CenturyLink in 2017 sold its data center and colocation business to a consortium led by BC Partners and including Medina Capital Advisors and Longview Asset Management. The group then formed a new infrastructure company called Cyxtera Technologies with CenturyLink’s data center assets.

Cyxtera partners say there’s been confusion around accounts sold by agents when the technology was under a CenturyLink contract, and whether the same rules of engagement apply to these accounts, which are now with Cyxtera.

The second Cyxtera partner, which has a multi-million-dollar book of business with the company, said that their firm did later sign a contract directly with Cyxtera following the acquisition. However, there‘s still “gray area” that it claims is being incorrectly interpreted by the data center colocation provider.

“We got a call on a Friday that said: ‘Hey, we’ve done an audit, and these accounts are no longer getting paid on. Literally, we were supposed to get paid the following Monday or Tuesday,” the partner said.

After several weeks of back and forth and bringing documentation to the table, the partner was paid by Cyxtera on the accounts in question. “They were hoping that we didn’t have the documentation. That’s just my kind of gut instinct,” the partner said. “I look at it as they don’t want to pay the commissions anymore, which is very alarming.”

In June 2020, Cyxtera began to rebuild its channel strategy, starting with the launch of an updated channel partner program with the goal of increasing opportunities for its partners, Gonzalez said. As part of the channel investment, the company brought on Nicholas Voth as its vice president of global channel strategy and sales. Joining Voth’s team was Brian Scandariato, who came on in September 2020 as Cyxtera’s director of Channel, US Central/Canada. James Kirkland joined Cyxtera as director, MSP channel sales, in June 2021.

Cyxtera said in 2020 that it was “doubling down” on its channel partner program investments to help the company expand across the globe. The investments made in the channel “have paid dividends” for Cyxtera over the last 14 months, Gonzalez said. “The number of partners who have registered deals with Cyxtera have more than doubled in the last year, and the number of deals being registered has grown by more than 75 percent,” he said. “ In the first half of 2021, in comparison to the first half of 2020, we’ve more than doubled channel bookings. [Channel] is becoming an increasing part of our revenue mix.”

A third Cyxtera partner, which also has run into issues getting paid on certain customer accounts, said that Cyxtera recently hasn’t accepted some deal registrations. The partner also referenced some “trust issues” with Cyxtera’s direct reps.

“[Cyxtera] matches you up with a direct rep once you register an opportunity. We’ve had issues with the direct reps wanting to really control the relationships and not keep us in-sync, or even undermining us in certain situations,” the partner said.

The third partner added that Coral Gables, Fla.-based Cyxtera has been a good partner historically. “I‘m hopeful that this is just something that we’ll be able get solved,” the partner said. ”I’m definitely watching it closely and working with them as we try to get to a resolution.”