Five Years Later: How The Wall Street Meltdown Hit the Data Center Market
September 16th, 2013 By: Rich Miller
It’s been five years since the collapse of Lehman Brothers triggered a global financial crisis. The anniversary has prompted U.S. media to revisit the crisis and its fallout.
The financial crisis left its mark on nearly all industries. That was certainly true for the data center market, a capital-intensive business that relies upon credit for construction financing.
There were several specific impacts, however. The meltdown scuttled the acquisition of one data center provider, and provided a stern test for another – as well as huge opportunity for brave investors.
When the financial crisis hit in September, 2008, enterprise cloud pioneer Terremark was in the late stages of negotiations to be acquired. The potential sale of the Miami-based company was derailed by the credit crisis, as the Terremark board cited problems in the credit markets in its decision to halt efforts to sell the company.
The Miami-based colocation and managed hosting specialist received an unsolicited takeover offer in April 2008, and worked on a potential deal through mid-September, when Lehman collapsed. At the time, the board was conducting a details “market check” to determine whether the proposed price was fair to shareholders.
At the time, shares of Terremark were trading between $6 and $7 a share. The story had a happy ending, as Terremark was acquired by Verizon for $19 a share ($.14 billion) in 2011.
DuPont Fabros Technology
In September 2008, data center developer DuPont Fabros Technology was in the process of arranging a credit line to fund future construction projects. The company hoped to line up a secured loan of $300 to $400 million. But “several banks we were in discussion with have merged or disappeared,” said CFO Mark Wetzel.
In October the company was forced to postpone plans to build a new data center on Santa Clara, California. In an earnings call in November, the company expressed confidence in its ability to fund its expansion, but securities analysts asked pointed questions about the company’s strategic options if it can’t secure new loans.
Amid the uncertainty, shares of DuPont Fabros plunged to new lows. Little more than a year after going public at $21, shares of DFT fell to less than $2 per share. If you were among those that bought shares at those prices, you probably did pretty well. DuPont Fabros open today at $24.66. The Santa Clara SC1 data center was eventually funded and the company just completed leasing the first phase.