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The Era Of $10B Data Center Megadeals May Be Ending, But Experts Don’t See M&A Slowing Down Soon

The period of monster data center acquisitions with prices north of $10B may be nearing its end — at least in the U.S. — but experts say the pace of merger and acquisition activity in the data center industry will continue, even if the deals become smaller. 


When a pair of private equity firms paid $11B to acquire data center developer Switch earlier this month — an 11% premium on the company’s share price — the deal capped a 12-month stretch that saw the four largest M&A transactions in the history of the industry, according to CBRE.

The record $46B in M&A volume over the past year was greater than the previous two years combined, a string of enormous deals that more than halved the number of publicly traded data center operators. 

And while London-based data center firm Global Switch is openly seeking suitors willing to pay $11B, experts say that, at least in North America, this run of record deals is at or near its end due to one simple fact: There aren’t many large acquisition targets left.

But these same insiders say that the pace of M&A activity is not slowing down at all. While the deals might be smaller, the data center landscape is continuing to consolidate, driven by a flood of private capital looking for a home in the digital infrastructure space and by technological trends that are reshaping how data center operators view their assets. 

“There doesn't seem to be any shift in the amount of activity — it's just an ongoing conveyor belt of activity,” said Justin Puccio, executive vice president for corporate strategy at Databank. “I see that from both the real estate brokerage community as well as the investment banking community — that consolidation across the industry will continue. It’s not ending.” 

The corporate data center landscape looks dramatically different than it did just one year ago. Where there had been five publicly traded data center REITs, now only industry giants Equinix and Digital Realty remain. QTS was acquired for $10B by private equity investor Blackstone, while KKR purchased CyrusOne for $15B in a similar take-private deal. That same week, CoreSite announced it would be acquired by cell tower REIT American Tower for around $10B. Along with the sale of Switch earlier this month, this string of deals — all dwarfing any that came before — left few companies that deal exclusively in data centers remaining on public markets. 

What led to this streak of record-setting acquisitions?

Industry insiders point first to a flood of private capital flowing into the data center and digital infrastructure space, a flow of investment that began surging in 2018 but exploded following the outbreak of the coronavirus pandemic. While data centers were considered a niche and somewhat risky asset class as recently as five years ago, infrastructure investors began deploying significant capital toward data center providers around 2018, recognizing the facilities as vital infrastructure for an increasingly digital world. This changed the general perception of data centers as an investment vehicle and set the stage for the sector to be seen as a safe haven for institutional investors like pension and sovereign wealth funds in 2020 as their traditionally safe investments in asset classes like hotel and office suddenly became unstable. 


As demand for data center space surged, private equity investors saw acquiring data center operators not just as safe individual investments, but as opportunities to deploy further capital to meet the development needs of their new acquisitions.

“It's not just the acquisition of these businesses, it's the ongoing investment in businesses,” said CBRE Vice Chairman Rob Faktorow, who founded the firm’s data center advisory practice. “Because we're all trying to meet the demand curve, there is more capital deployed behind that initial investment that allows for them to capture attractive returns by putting more capital behind building out more sellable megawatts and square footage.” 

With user demand at record levels, data center operators both public and private have increasingly looked at private buyers as the only viable source of the capital needed to meet demand growth. Public companies looked for take-private deals, experts say, as public markets would punish them for taking on the kind of capital-intensive expansion programs needed to meet demand.

Novva Data Centers CEO Wes Swenson points to the fact that capital investment for a data center build-out might not yield returns for more than 36 months, a timeline that looks bad on quarterly earnings reports to investors who aren’t in the data center space. 

“I don't think the public markets are a good place for, for these assets right now. I compare these data centers to cruise ships, not speedboats,” Swenson said. “They take a lot of time to get up to speed and they have large turning radiuses. They do not lend themselves well to quarterly reward and punishment.”

Yet liquidity is not the only factor driving these huge deals. The acquisition of CoreSite by American Tower, a publicly traded REIT, doesn’t fit that model at all. Experts say the CoreSite deal exemplifies another trend that continues to drive transactions throughout the digital infrastructure space: As the emergence of so-called edge technologies makes assets like cell towers, data centers and fiber networks increasingly co-dependent, operators who previously dealt with only one piece of the digital infrastructure puzzle are moving to bring a range of these assets under one roof. 

“We continue to see this convergence of the digital infrastructure,” said Eric Watko, vice president of product line innovation at American Tower. “I think everyone is assessing where they fit into that, and how they can get their value proposition out of it.”

Industry insiders said that while they expect the M&A landscape to remain robust, they don't expect the record dollar volume to continue. Few public companies remain, and there are few independent data center startups.   

“We will continue to see transactions,” CBRE’s Faktorow said. “You just won't see it on this scale in terms of the size of deals, because it's just fewer companies for that to happen.”

Still, Faktorow said a number of forces will continue to drive M&A activity in the months and years ahead. Operators are still hungry for the capital needed to build out new data centers and meet surging demand, and investors are still climbing over each other to give it to them. Companies looking for buyers will be smaller players who need to recapitalize in order to grow, according to Faktorow. He points to Serverfarm as one firm that could sell imminently. 

Insiders also point to technology trends that they say will drive future transactions. With broad adoption of 5G on the short-term horizon and driving increased investment in edge markets, data center operators with national footprints are looking to invest in lower-tier markets in which they previously had little interest. It is a scenario familiar to Puccio at Databank, which has one of the most broadly distributed U.S. data center footprints. He said that when entering these edge markets, more often than not, acquiring a local operator makes more economic sense than developing new facilities. 

“We want to be poised to support users and enhance their experience by bringing workloads closer to them, so we're always trying to increase our footprint and grow our footprint in order to continue to meet the demands of those customers,” Puccio said. “We see M&A as a need to support our users, and it’s about being targeted in terms of the geography and the type of acquisition.”