It looks like another private equity firm has snapped up a data center company. This time it's hyperscale data center platform EdgeCore Digital Infrastructure, which global private markets firm Partners Group purchased today for $1.2 billion.
This purchase comes during a hot market for data center acquisitions by savvy private equity groups. KKR purchased CyrusOne last year for $15 billion. DigitalBridge partnered with IFM to buy Switch for $11 billion in May. Blackstone Infrastructure Partners scooped up QTS Realty Trust for a cool $10 billion.
Let’s look at the data center environment that created such a keen interest in data center acquisitions.
High Demand from the Pandemic-fueled Move to Multi-Cloud Fuels PE Interest
Consistent performance throughout the Pandemic encouraged the interest of private equity dollars, which often look for stable or counter-performing investments that can weather choppy market conditions.
“PE firms began investing in earnest less than 10 years ago and have been picking up the pace aggressively in the last few years,” said Alan Howard, principal analyst, colocation, and DC building, Omdia. “The market has historically had a high-risk profile because of the hefty capital outlay to operate high-quality DCs, commonly framed as ‘high barriers to entry.’”
“However, even amid extremely tough economic times, sustained revenue results and market fundamentals have emboldened faith in the sector’s long-term investment return viability,” he said.
Notice the statement made by Partners Group around why they were attracted to EdgeCore as an investment. “We found rising demand for data centers in the US as service providers deploy more capacity to support businesses migrating to the cloud,” said Ed Diffendal, managing director, co-head private infrastructure Americas, Partners Group.
“EdgeCore is a unique next-generation infrastructure investment due to its strong portfolio of data center sites, advanced pipeline of shovel-ready assets in strategically important markets, and talented management team."
We take ‘shovel-ready assets’ to mean more sites, expansion, and investments are already in the works and Partners Group believes those coming projects to be profitable.
This trend doesn’t appear to be slowing down any time soon and industry experts expect 2023 to bring the highest volume of private equity acquisitions in the data center space yet.
Valued at $50 billion by the end of 2021, Straits Research projects the data center colocation market size to be roughly $160 billion by 2030.
Could More Colos Go Private in 2023?
Data center industry watchers suggest more large data center service providers could go private in the same manner CyrusOne and QTS did recently.
“This capital-intensive shift requires significant investment to get to the next tier,” said Tim Crawford, CIO strategic advisor, AVOA. “Publicly traded markets are one option. However, publicly traded markets tend to favor growth and less disruption.”
“Private equity can provide the capital required while withstanding the disruption that comes from transformation,” Crawford told Data Center Knowledge.
Another highlight of the Partners Group announcement today was the mention of ‘long-term contracts with Tier-1 data center users’ EdgeCore brings to the table. This cannot be underestimated when valuing colos.
Principal Analyst Alan Howard may prove prescient as we watch the shift from public to private ownership and operations of data centers.
“The disclosures and transparency we’ve enjoyed have been lost with public companies that are now or will be private,” Howard stated. “It’s a wait-and-see game now as it will take time to see how it all plays out, so the lessons learned will have to wait.”