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Private equity players fuelled record number of datacentre mergers and acquisitions in 2019

While the number of deals being struck in the datacentre market hits new highs, the average deal size shrinks for the second year in a row

The number of mergers and acquisitions (M&A) in the datacentre market hit a record high in 2019, thanks to a sizeable injection of private equity money into the sector.

According to data from analyst house Synergy Research Group, the number of deals that closed over the course of last year exceeded 100 for the first time, up 6% on 2018.

To put that figure into context, close to 350 M&A deals closed over the past five years, and just under a third of those occurred in the past 12 months alone.

The reason for the sudden ramp up in M&A activity may be linked to the recent influx of private equity money into the sector, with Synergy’s research showing the number of deals being funded in this way was up 50% on the previous year.

This has, according to Synergy, helped offset the 45% decline seen in the number of deals involving public companies that occurred in 2019.

Datacentres are often considered to be an attractive target for investors looking for a stable and dependable source of recurring revenue, as tenants tend to sign up for multi-year contracts.

At the same time, the number of enterprises looking to offload their IT requirements to colocation facilities or the public cloud means demand for datacentre capacity is on the rise, which has not gone unnoticed by the investor community, said Synergy. 

“Datacentres are strategically important assets that are enabling huge growth in cloud and a big reorientation in enterprise IT operations. This is attracting ever-increasing levels of private money to help fund the growth and to drive datacentre industry restructuring,” said Synergy, in a research note.

However, while the number of M&A deals being embarked on hit an all-time high in 2019, the aggregate value of the deals that occurred during the year was down, due to a 24% slump in average deal sizes.

This is due to a decline in the number of multibillion-dollar deals occurring in the datacentre sector, said Synergy, which is a trend that began to take hold in 2018.

It said: “2017 marked a peak in average deal values thanks to three multibillion-dollar deals and three more valued at over $1bn each. The number of billion-dollar deals declined in 2018 and again in 2019.”

Since the beginning of 2015, Synergy has identified 348 closed deals with an aggregated value of $75bn. Over the five-year period the aggregated deal value has been split roughly equally between public companies and private equity buyers, while private equity buyers have accounted for 57% of the deal volume.

Colocation market leader Equinix and its arch-rival Digital Realty are name-checked by Synergy as being the datacentre sector’s two largest investors between 2015 and 2019, with the pair – in aggregate – accounting for 31% of the total deals by value in that time.  

That period has seen Equinix hit the acquisition trail a number of times, with its £2.35bn takeover of TelecityGroup being notable for its size, but also the bidding war that broke out between Equinix and Interxion for the firm beforehand. 

Meanwhile, Digital Realty is in the throes of closing (what is tipped to be) the largest ever datacentre-related M&A deal, in the form of its proposed merger with fellow colocation provider Interxion.

“The aggressive growth of cloud services and outsourcing trends more generally are fuelling a drive for scale and geographic reach among datacentre operators, which in turn is stimulating datacentre M&A activities,” said John Dinsdale, chief analyst at Synergy Research Group.

“This has been attracting an ever-increasing level of private equity activity as investors seek to benefit from high-value and strategically important datacentre assets. It is also notable that even the biggest publicly traded datacentre operators are increasingly turning to joint ventures with external investors to help fund growth and protect balance sheets.”

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