DEFA14A: Data Storage Corp. Adds Divestiture Details Amid Shareholder Scrutiny

Data Storage Corporation filed supplemental disclosures for its cloud solutions business divestiture to address shareholder concerns and avoid potential litigation.

Summary

• Data Storage Corporation (DTST) filed supplemental disclosures to its definitive proxy statement regarding the proposed divestiture of its cloud solutions business.
• The divestiture involves the sale of substantially all of the Company's assets, including its subsidiary CloudFirst Technologies Corporation and CloudFirst Europe Ltd.
• The Company received letters from purported shareholders, dated August 14, 2025, August 18, 2025, and August 27, 2025, alleging omissions of material information regarding financial multiples and metrics in the original proxy statement.
• To avoid potential lawsuits and delays, the Company voluntarily provided additional disclosures, while denying the necessity or materiality of such disclosures.
• The supplemental disclosures amend the 'Selected Companies Analysis' and 'Selected Transactions Analysis' sections of the financial advisor's opinion.
• Cassel Salpeter & Co., LLC's analysis indicated an implied aggregate value reference range for the Business of $34.7 million to $40.8 million based on LTM and 2025P Normalized EBITDA multiples from selected companies.
• Cassel Salpeter & Co., LLC's analysis indicated an implied aggregate value reference range for the Business of $36.5 million to $42.6 million based on LTM Normalized EBITDA multiples from selected transactions.
• The Base Purchase Price for the divestiture is $40.0 million.

Sentiment

Score: 4

Explanation: The company is addressing shareholder concerns and mitigating potential legal risks, which is positive. However, the fact that such concerns arose and required supplemental disclosures, despite management denying their necessity, indicates underlying issues with initial transparency or shareholder relations. The divestiture itself is a major event, but the filing focuses on the procedural aspects of disclosure.

Positives

• The Company is proactively addressing shareholder concerns by providing supplemental disclosures, potentially avoiding costly litigation and delays.
• The implied aggregate value reference ranges from both analyses ($34.7M-$40.8M and $36.5M-$42.6M) generally align with or exceed the Base Purchase Price of $40.0M, suggesting a reasonable valuation for the divestiture.

Negatives

• Shareholders raised concerns about omitted material information in the initial Definitive Proxy Statement, indicating potential transparency issues or inadequate initial disclosures.
• The Company felt compelled to make voluntary disclosures to avoid a potential lawsuit, suggesting a risk of litigation if not addressed.

Risks

• Potential for lawsuits from purported shareholders regarding the sufficiency of disclosures, which could delay or adversely affect the Divestiture Proposal.
• The divestiture of 'substantially all' of the Company's assets implies a significant change in the company's business model and future operations, which carries inherent risks.
• The analyses by Cassel Salpeter & Co., LLC are not mathematical and involve complex judgments, meaning the implied value ranges are subject to interpretation and market conditions.

Future Outlook

The company anticipates holding its annual meeting on September 10, 2025, where stockholders will vote on the Divestiture Proposal. The supplemental disclosures are intended to facilitate the approval process by addressing shareholder concerns and avoiding potential litigation.

Management Comments

• "The Company believes that the claims asserted by counsel to the purported shareholders are entirely without merit and that no further disclosure is required by applicable rule, statute, regulation or law beyond that already contained in the Definitive Proxy Statement."
• "To preclude and avoid the cost and distraction of a potential lawsuit regarding the sufficiency of the disclosures in the Definitive Proxy Statement that may delay or otherwise adversely affect the approval of the Divestiture Proposal, the Company has determined that it will voluntarily make certain supplemental disclosures."
• "Nothing in this Current Report on Form 8-K shall be deemed an admission of the legal necessity or materiality under applicable laws of any of the Supplemental Disclosures set forth herein. To the contrary, the Company specifically denies that any additional disclosure was or is required."

Industry Context

The filing provides valuation benchmarks by comparing the divestiture to recent transactions and publicly traded companies in the data storage, cloud solutions, and IT services sectors. This includes companies like Dell Technologies, Hewlett Packard Enterprise, NetApp, Pure Storage, Kyndryl Holdings, DXC Technology, DigitalOcean Holdings, and Rackspace Technology, as well as various M&A transactions involving technology and IT service providers. The wide range of multiples observed (e.g., LTM Normalized EBITDA from 2.5x to 11.7x for selected companies, and 3.9x to 48.1x for selected transactions) highlights the diverse valuation landscape within the industry, influenced by specific business models, growth prospects, and market conditions.

Comparison to Industry Standards

• The implied aggregate value reference range for the Business ($34.7M-$42.6M) is being compared to a Base Purchase Price of $40.0M.
• Cassel Salpeter applied multiples of 6.0x to 7.0x to the Business's LTM Normalized EBITDA and 5.5x to 6.5x to the Business's 2025P Normalized EBITDA.
• These applied multiples are generally below the mean and median LTM and 2025P Normalized EBITDA multiples of the selected comparable companies (e.g., mean LTM 8.0x, median LTM 9.2x; mean 2025P 7.8x, median 2025P 8.3x). This suggests the Business is being valued at the lower end of the comparable public company spectrum.
• Similarly, the applied LTM Normalized EBITDA multiples (6.0x-7.0x) are significantly lower than the mean (15.3x) and median (10.7x) of the selected comparable transactions, indicating a valuation at the lower end of recent M&A activity in the sector.
• Specific comparable companies and their LTM/2025P Normalized EBITDA multiples include: Dell Technologies Inc. (9.2x/8.3x), Hewlett Packard Enterprise Company (5.7x/5.9x), NetApp, Inc. (9.8x/10.0x), Kyndryl Holdings, Inc. (6.5x/4.0x), DXC Technology Company (2.5x/2.9x), DigitalOcean Holdings, Inc. (11.7x/11.1x), and Rackspace Technology, Inc. (10.3x/12.6x).
• Specific comparable transactions and their LTM Normalized EBITDA multiples include: Converge Technology Solutions/Mainline Information Systems (9.0x), SolarWinds Corp/Turn/River Management, LP. (15.3x), Computer Task Group/Cegeka Groep NV (10.7x), Grove Resource Solutions/DLH Holdings Corp. (15.9x), PC Specialists, Inc./Converge Technology Solutions (6.2x), Vmware, LLC/Broadcom, Inc. (22.3x), Datto Holding Corp/Kaseya, Inc. (48.1x), CompuCom Systems, Inc./Variant Equity Advisors, LLC (3.9x), and Flagship Solutions LLC/Data Storage Corp (6.1x).

Corporate Governance

Legal Proceedings

• The company received letters from purported shareholders expressing belief that the Definitive Proxy Statement omits material information and demanding supplemental disclosures.
• The company made voluntary supplemental disclosures 'to preclude and avoid the cost and distraction of a potential lawsuit.'

Stakeholder Impact

• Shareholders: Directly impacted by the proposed divestiture of substantially all assets and the vote at the annual meeting. Some shareholders raised concerns about disclosure sufficiency, leading to supplemental information. The valuation details provided are crucial for their voting decision.
• Management/Board: Involved in the decision to divest and in responding to shareholder demands, aiming to ensure the divestiture proceeds smoothly without legal challenges.

Next Steps

• Stockholders will vote on the Divestiture Proposal at the annual meeting on September 10, 2025.
• The company encourages investors and stockholders to read the Definitive Proxy Statement and other SEC filings for complete information.

Key Dates

Keywords

Data Storage Corporation, DTST, SEC filing, DEFA14A, 8-K, Divestiture, Cloud Solutions Business, CloudFirst Technologies, CloudFirst Europe, Proxy Statement, Shareholder Concerns, Financial Analysis, Valuation, EBITDA Multiples, Mergers and Acquisitions, Corporate Governance, Risk Management