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After Shrinking Of Publicly Traded Data Center Universe, New IPOs May Be On The Horizon

Private capital has fueled the data center industry’s record growth in recent years, but a return to Wall Street could be coming soon.


Since 2020, the number of publicly traded data center firms has dwindled to just a pair of REITs, with some of the world’s largest operators exiting public markets through multibillion-dollar M&A deals. The consensus over the past three years has been that private capital is better equipped to fund the industry’s unprecedented expansion. A growing pool of institutional investors has been eager to deploy capital into the space, while remaining public firms like Digital Realty have faced questions about their future viability.  

But that calculus may be starting to shift. Some industry veterans say the next round of data center IPOs is just around the corner. While some remain skeptical, a growing chorus of voices is pointing to Wall Street as the best option for certain providers as their ballooning scale and value tests the limits of the private market’s ability to fund growth. 

“We’re down to only two public companies in the data center space, but that’s going to change: small and medium-sized companies are going to aggregate and get bigger, and we're going to see a new round of IPOs,” said Jeffrey Moerdler, a longtime data center and telecom attorney and a member at Mintz, speaking last month at Bisnow’s DICE Northeast event at the New York Marriott Marquis.

“Financial markets may dictate the timing of it, but I think it's coming soon where you'll have a new round of public companies," he added. 

The data center industry’s period of record growth in 2021 and early 2022 saw four of the most prominent data center providers disappear from public markets in the largest flurry of M&A activity the sector has ever seen.

Asset management giant Blackstone acquired QTS Data Centers in a $10B take-private deal in June 2021. Five months later, CoreSite was acquired by American Tower, while CyrusOne sold to KKR and Global Infrastructure partners — a pair of deals that together exceeded $25B. Digital Bridge and IFM Investors then took Switch Data Centers private for $11B in 2022. 

When the dust settled, industry giants Digital Realty and Equinix were left as the only remaining pure data center REITs on public markets. 

Data center experts say private capital has proven to be a better vehicle for funding the rapid development needed to meet surging demand over the past three years, particularly as the market has shifted away from retail colocation and toward large-scale campuses and single-tenant facilities for major cloud providers like Amazon Web Services, Microsoft and Google.  

A business model increasingly centered around massive, capital-intensive projects that may take years to develop and are leased in one fell swoop is not conducive to the kind of consistent, predictable performance data center REIT investors expect, investment experts say. Private developers are also able to take on far more leverage than Wall Street would ever tolerate. 

“These companies decided that because of the lumpiness of their business and because of the balance sheet flexibility that existed in the private markets, it made more sense to be private,” said Fentress Boyse, investment leader for infrastructure at Partners Group, speaking at DICE Northeast. “That’s versus having to hit forecasts exactly quarter-to-quarter and having to maintain debt at four to five times [earnings] while private operators could take out financing at closer to 12.” 

Few expect this prevailing sentiment to change overnight, particularly with a growing pool of institutional investors looking to deploy capital in digital infrastructure. But prominent voices within the industry are pointing to signs that the pendulum may soon swing back toward public markets as the best path for some of the sector’s largest players to fund growth. 

Partners Group’s Fentress Boyse speaks at Bisnow’s DICE Northeast. He is joined by (from left): TitleVest’s Brian Tormey, Greenhill’s Jennifer Fritzsche, Mintz’s Jeffrey Moerdler, DigitalBridge’s Sadiq Malik and fifteenfortyseven Critical Systems Realty’s Corey Welp.

“As we think about the next couple of years: Yes, there’s a lot of private capital, but I do think that for some of these platforms that have become so exceedingly large there is a discussion now in its very early days, the green shoots of which are dictating that they may need to tap into the public markets for growth,” said Irtiaz Ahmad, managing director and head of digital infrastructure & services coverage at Solomon Partners.

“We’ve seen some limitations on the depth of the private capital markets come into play over the last six months, where certain syndications of private equity capital or private debt capital transactions were either delayed or had to be downsized," Ahmad added.

Ahmad said the previous round of major M&A transactions all but dried up the private equity and debt funnels from institutional investors and banks. Now, while the capital pool has expanded, so have the number of companies with valuations in the tens of billions.

At the same time, the scale and cost of individual development projects has shot up beyond what would have been considered feasible just three years ago, with hyperscale tenants looking for deployments of hundreds of megawatts of capacity at a time. 

In addition to private data center firms like Vantage, Aligned or Compass that have seen their valuations increase dramatically through mainly organic growth, Mintz’s Moerdler expects smaller regional colocation providers to consolidate in the months ahead, building national platforms focused on enterprise tenants as the largest operators increasingly target hyperscale users. These firms, too, will be seeking growth capital.

With only so much private capital to go around, public markets may be the best option for firms and their investors looking for an exit in the months and years ahead. 

“And at some point, you reach the upper limits of private capital availability, and the natural inclination is to think: OK, let's go back to the public markets — it’s very liquid and that makes all the sense in the world," Partners Group’s Boyse told DICE East. “But I think no one has actually figured out entirely what the exit plan is for these large-scale companies.”