Data centre moves afoot

27 April 2018 | James Pearce

Mergers and acquisitions in the data centre business hit record highs last year. James Pearce looks at the drivers behind the growth of M&A activity

P48 680More than $20 billion was forked out on mergers and acquisitions in the data centre space in 2017 alone, according to Synergy Research Group, double what was spent the previous year.

By far the biggest recent investors have been Equinix and Digital Realty, another leading colocation provider, which together forked out $19 billion to buy data centre operators between 2015 and 2017, says Synergy. Combined, these two firms accounted for more than 50% of the M&A deal value in 2017, with Equinix striking deals across all of the major regions of the world. Digital Realty, however, was focused primarily on assets in the US and Europe.

Some telecoms operators have been exploring options in this space, including exiting it entirely. AT&T has again been exploring a sale of its data centre assets, according to reports this February. That comes after Verizon completed the sale of 29 data centres to colocation provider Equinix in 2017, at the same time that CenturyLink said it had wrapped up the sale of its own data centre and colocation business. 

Matt Walker, founder of MTN Consulting, points out that the carrier-neutral data centre segment has swiftly evolved in the past few years and has ready access to capital, thus encouraging plenty of M&A activity from buyers of such assets. Telcos have less need to own the physical assets too, he says, because “carrier-neutral access to data centre space is readily available in the US market, more so than in other regions”.

The largest transaction in the year was Digital Realty’s $7.6 billion acquisition of DuPont Fabros, but there were four other deals that were valued at a billion dollars or more, involving acquisitions by Equinix, Cyxtera, Peak 10 and Digital Bridge. There were another 12 deals that were valued in the $100 million to $1 billion range, and 31 smaller deals that were each valued at up to $100 million.

Synergy predicts that over the next five years there will be further consolidation in the market, as it is transformed by the drive towards outsourcing and the dramatic growth of cloud providers.

“Above all else, what is driving the data centre M&A activity is enterprises focusing more on improving IT capabilities and less on owning data centre assets,” said John Dinsdale, a chief analyst and research director at Synergy Research Group. 

“That shift is driving huge growth in outsourcing, whether it is via cloud services, or use of colocation facilities, or sale and leaseback of data centres. The dramatic growth of cloud providers is also driving changes in the data centre industry, as data centre operators strive to help them rapidly increase scale and global footprint. We expect to see much more data centre M&A over the next five years.”

Other figures from Synergy show the number of large data centres operated by hyperscale providers is rapidly approaching the 400 mark, with this expected to pass the 500 milestone before the end of 2019. 

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