Big Interview

A strategy for Africa

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New deals, markets and people gave Digital Realty a bumper year-end. Recently appointed president Andrew Power tells Melanie Mingas how it all fits into the firm’s wider strategy

In the words of company president Andrew Power, Digital Realty had a fast and furious end to 2021.

The final quarter started with news of an investment in AtlasEdge, a joint venture (JV) between Liberty Global and DigitalBridge with a network of more than 100 edge facilities across Europe. Then Digital Realty’s Q3 financial results saw a 4% increase in reported revenue on the previous quarter, up 11% year on year. There was the December listing of Digital Core REIT on the Singapore Exchange, and then Power’s promotion to company president – the first in Digital Realty’s then 17-year history and a role that commenced just as his second daughter was born.

But there were also major announcements from Africa: iColo’s expansion into Mozambique and Digital Realty’s JV with Pembani Remgro Infrastructure Fund to acquire Medallion Data Centres.

Medallion has two facilities, in Abuja and Lagos, with the latter hosting more than 70 carriers and ISPs, as well as more than 80% of the public peering traffic on the Nigerian Internet Exchange. It also serves as a peering point for all subsea cables currently operating in Nigeria, and will serve as a peering point for a further nine new subsea cables due by 2023.

“I look at Africa like a clock with these critical connectivity destinations in Africa and on the periphery of Africa, that really tie together the egress and ingress of our customers’ growth, their data, even starting outside of Africa with Marseille and Athens and working down the coast to Kenya,” says Power.

At thet time, the PlatformDIGITAL expansion was described as “just the start” of Digital Realty’s US$500 million investment in Africa over the coming decade, but it was not the firm’s first step on the continent. That came with the $8.4 billion acquisition of Interxion in 2019, which brought with it more than 200 facilities across six continents, including presence in Mombasa and Nairobi under the aforementioned iColo brand.

“When we came together with Interxion, Africa was certainly on the radar and both companies had approached things in a more agile, flexible, nimble approach with partnerships along the way,” says Power.

Continuing the momentum into this year, in January came news of the Teraco deal. Described by Power as “the crown jewel”, the business ties together “our African strategy with our critical connectivity destinations, but in a format that backs local expertise and delivers our local platform. Often in some areas we form a partnership to bring the best of both worlds for our customers”.

Teraco buy

Digital Realty acquired a 55% stake in the Johannesburg-headquartered Teraco Data Environments in January, buying out interests from a consortium of investors, including Berkshire Partners and Permira, and valuing the company at $3.5 billion.

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Jan Hnizdo, Teraco

“This was a scenario where the management team and the existing shareholders said they had done great things with the business and that it would be great to align with a global strategic partner, but I’m not ready to go home. The night is too young,” Power says.

As a result, both Berkshire and Permira, as well as existing investor van Rooyen Group, retained a minority stake while the current management team remained in place and will continue to be “significant investors” in the business.

Digital Realty’s relationship with Teraco pre-dates the involvement of Berkshire and Permira. When they came on board, Power says Digital Realty was looking to secure a minority interest, but “it wasn’t the right timing”. Still, they developed a relationship with Teraco’s management team and remained in contact, paving the way for January’s deal.

“We’re big fans of the business and they’re incredibly important to our platform and our customers today and in the future,” says Power.

“What we saw was a combination of major South African markets and critical connectivity destinations that have basically flourished over time to 22,000 cross connects,” he adds.

“They landed all the top multi-national service provider customers. They had essentially built a strong enterprise business with 600 different customers, they bought adjacent land banks and they had built a team of people – the people really matter – and that combination we saw was like a tremendous moat when it comes to South Africa,” Power continues.

The Teraco platform comprises 187MW of total planned capacity and the business owns the freeholds to six of its seven data centres, representing more than 85% of total revenues, including its densely interconnected campus in Johannesburg. The landbanks Power references will support the development of up to 93MW of additional capacity.

Praising the leadership of chief executive Jan Hnizdo, Power says he “has done tremendous things with the business”. For now, the Teraco deal rounds off the immediate acquisition plans for Africa, although Digital Realty will still invest in incremental land purchases and build outs as needed. However, it leaves some work to do on the branding front.

As with Interxion’s facilities in Africa, Digital Realty is not looking to immediately change the names above any of the doors it now owns – in whole or in part – but all are now very much Digital Realty companies.

European facilities could see a name change “sooner rather than later”, while Ascenty in South America will likely migrate towards Digital Realty South America or Digital Realty Brazil over time.

“It’s important that we have that balance, that day one we don’t want to throw up a Digital Realty brand that nobody in that part of the world has ever heard of. That has been our style and I think you will see us continue down this route for a little bit,” Power says.

Fibre and the future

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Bill Steinm Digital Realty

The Teraco acquisition – as with the others – ties into a wider strategy, the whiteboarding of which dates back Bill Stein’s early tenure as CEO. He asked Power to come on board as chief financial officer and the focus at that point was where to take the business to globalise its capabilities.

That was not the start of Stein and Power working together. Stein was CFO when Digital Realty listed in 2004 – he is now CEO – and prior to officially joining, Power was not only involved in the IPO but in every capital raise the business completed (see timeline).

“We’ve worked quite hard now over several years to expand our reach across more than 50 metropolitan areas and more than 25 countries on six continents. We’ve done that through organic and inorganic means over several years because our customer base values that platform’s capabilities,” says Power, who reports that customer base grows by 130-140 additions every quarter.

In the earlier years of all this inorganic growth – and over the ocean in Brazil – Digital Realty acquired Ascenty. The deal closed in 2018 and, in addition to its data centre assets, it came with a fibre business. In the Latin American market, where subsea projects abound but there is a time lag on the terrestrial connections, it is a useful resource to have on hand.

Power says the business case for Ascenty’s fibreco was “we can be the best data centre operator but [without fibre] someone is going to drop the ball on the way outside of the data centre”. Could the same be required in Africa? There are some parallels between the two markets Power says, but at this point it is a case of never say never.

“That doesn’t mean we won’t forever and all time be a fibre provider in Brazil. And it doesn’t mean we need to replicate this to other parts of the world. But it’s not lost on us that our capabilities are highly dependent on our locations and the physical infra surrounding those locations,” he says.

“Today I don’t see us running to build terrestrial fibre in Africa. If the right facts and circumstances came back and there was a need of capital or some other support, we are all in to help our customers be highly successful, because it’s in our culture and DNA to think creatively when we have to,” he adds.

As for where things will go next there are a few things going on behind the scenes, “advancing the ball on our service provider customers” while staying relevant on the enterprise side and, of course, keeping an eye on the impact of inflation.

Or, in other words, “really rising up and giving Equinix a run for their money in that enterprise colo category”, Power says. Oh, and a new connectivity solution will launch “sometime in 2022” backed with “more updates on the space and power front”, Power says.

There is also more news to come on BAM Digital Realty, the Indian JV with Brookfield Infrastructure confirmed last July. Approvals are now secured and Seema Ambastha has been named CEO.

“It was a fast and furious close to 2021,” Power says. “And, it feels like a shot out of a cannon in 2022 in terms of activity.”

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