The data center and colocation industry continues to achieve double digit annual growth. This trend has created opportunities for mergers and acquisitions within the sector which is evidenced by the flurry of data center deals during the first half of 2017. These mergers and acquisitions have ranged from the largest players to smaller regional operators seeking economies of scale. This industry consolidation may create new challenges when selecting a location for your next data center as the data center landlords and colocation provider landscape continue to shrink. To help understand these challenges, several of the larger merger and acquisition deals are analyzed below.
Digital Realty’s merger with DuPont Fabros is biggest news of the year
The first half of 2017 is notable for several completed massive mergers (with one proposed) within the data center sector. The biggest announcement is Digital Realty Trust’s proposed merger with its major competitor, DuPont Fabros Technology, in a $7.6 billion deal expected to close later this year. Digital Realty already maintains 145 properties comprising 24 million square feet across 33 metro areas worldwide. It will now add over 3 million square feet in 12 wholesale data center campuses across Tier 1 markets.
Digital Realty has been known in the wholesale colocation business for its phased development geared to colocation customers needing 500 kW to 5 MW. More importantly the acquisition will allow Digital to meet the demand for larger 10 MW+ deployments that are becoming more routine and were being addressed by DuPont Fabros at its sites.
Telecom companies continues to divest of their colocation facilities
The following three major acquisitions continued the trend of major telecom companies divesting of their hosting and colocation facilities, started when Windstream sold its colocation data centers in late 2015 to TierPoint.
Equinix closed on the acquisition of the Verizon (Terremark) Data Center portfolio, which consists of 29 data centers in 15 cities in North and South America. The $3.6 billion acquisition totaled nearly 3 million gross square feet of data centers, including the 750,000-square-foot Miami NAP of the Americas. The acquisition, which closed in the second quarter, allows Equinix to meet its customers demands by having a more distributed versus centralized model, while adding several new U.S. locations and new inroads into Columbia and Brazil.
CenturyLink completed a similar sale of its data center and colocation business in the first quarter to a private investment joint venture led by Medina Capital for over $2.3 billion. This CenturyLink portfolio had its roots with its acquisition of Savvis back in 2011 and the sale comprised 57 data centers comprising 195 MWs of power spanning 2.6 million square feet spread across the U.S., Europe and Asia. Now renamed Cyxtera Technologies, these colocation operations have been integrated with other cybersecurity businesses also owned by Medina.
Shaw Communications just announced that it will sell its ViaWest data center business to Peak 10 for $1.67 billion, making the combined company North America’s largest privately held data center company. The combination will have a portfolio across 20 markets and realize synergies with minimal market overlap.
Other data center operators are also in acquisition mode
The recent acquisition craze also applies to the next tier enterprise-class colocation operators. The market continues to consolidate, and the new operators are likely to be on the lookout for more roll-up opportunities. Digital Bridge closed on its acquisition in 1Q2017 of Vantage Data Centers, one of the larger colocation operators in Silicon Valley. Digital Bridge had already purchased DataBank in 2016 followed by C7 Data Centers, which were two other regional operators.
365 Data Centers, a regional edge data center and colocation operator across eight markets, was acquired by Dublin, Ireland-based Chirisa Investments. Highly regarded in Europe, Chirisa’s first foray in the U.S. is just a start and is expected to build on this purchase. Edge operators, and the services they can deliver, are part of an important initiative for many Internet and social media customers.
CyrusOne, one of the largest colocation operators, purchased two large raised-floor facilities from Sentinel Data Centers for about $500 million. Combined, the two facilities have built-out space of 160,000 square feet and 21 MW, with expansion of up to 37 MW. CyrusOne, while continuing to grow organically in its existing and expanding markets, is always looking for a strategic buy.
The above-noted mergers and acquisitions are just some of the investment activity in the data center and colocation sector. While the first half of 2017 has been very hectic, the second half should also be robust as the colocation business seeks to mirror client demand and realize synergies across their data center portfolios. As the industry consolidates, the data center landlord and service provider landscape will continue to shrink and provide less options to consider during the data center site selection process.