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More than 90% of the funding for datacentre-related mergers and acquisitions (M&A) came from private equity sources during the first half of 2022, data from Synergy Research Group shows.
The market watcher’s datacentre M&A activity tracker shines a light on how private equity houses’ hold on the sector has increased in recent years, as deal sizes have grown to such an extent that it has become difficult for operators to go it alone on purchases.
According to Synergy’s data, 87 datacentre M&A deals closed during the first half of 2022 with a confirmed aggregate value of $24bn, with a further $18bn of deals in the pipeline that are still yet to complete but are expected to do so before the end of the year.
Based on this data, 2022 could be on course to become another record-breaking year for datacentre M&A activity, given that a total of 211 deals worth more than $48bn were closed during the previous record-breaking year of 2021.
In terms of where the money for all these deals is coming from, Synergy Research Group said a growing amount of private equity money has been moving around the sector in recent years as investors look to diversify their portfolios.
“In the 2015-2018 period, private equity buyers accounted for 42% of deal value,” the company said in a statement. “In 2019 to 2021, as the overall level of M&A activity ballooned, private equity share of the total deal value increased to 65%, while in the first half of 2022, private equity share has jumped to over 90%.”
An example of this trend is the $15bn acquisition of colocation provider CyrusOne by investment firms KKR and Global Investment Partners, and Computer Weekly reported yesterday that Norwegian colocation provider Green Mountain was expanding to the UK through an acquisition funded by its parent company, a real estate investment group.
There are several reasons why the datacentre sector has become such an appealing prospect for private equity investors in recent years. Chief among them is the fact that colocation tenants tend to sign lengthy, 15-to-20-year lease terms, which bring a degree of predictability to their investments.
At the same time, demand for datacentre capacity is showing no signs of slowing down, which means there is a lot of pent-up demand for new-builds and site expansions, meaning the chances of making a return on that investment are high.
“There is an ever-increasing demand for datacentre capacity, driven by rapidly growing cloud markets, aggressive expansion of hyperscale operator networks and continued growth of data-rich digital services,” said John Dinsdale, a chief analyst at Synergy Research Group.
“The trouble is that building and operating large fleets of datacentres is highly capital-intensive. Even the biggest datacentre operators have had to seek external funding to allow them to meet growth targets while protecting their balance sheets. As the level of resulting M&A activity has shot through the roof, virtually all the incremental investment has come from private equity.”