Category: datacenters

Western European MTDC M&A is on a ‘raised floor’ in 2015

Mark Fontecchio

Contact: Mark Fontecchio

Western Europe has seen landmark datacenter consolidation thus far this year – a trend we predict will continue in the near future. Data regulation requirements, increasing demand for high-quality datacenter space and latency concerns are three factors driving M&A in the datacenter market in 2015.

A lot is happening in the Western European multi-tenant datacenter (MTDC) market outside of the big deals, with smaller regional players looking to grow their service portfolios and extend their reach across the continent with smaller facilities outside of major metros. We expect to continue to see increased M&A activity throughout Europe as the region recovers from the economic crisis.

According to 451 Research’s M&A KnowledgeBase, there were 19 datacenter hosting acquisitions in the first five months of 2015, compared with just seven in the same period last year. What’s more striking is the deal value – some $4.7bn this year compared with $1.2bn in all of 2014. To be sure, the deal value in Western Europe this year is inflated by Equinix’s $3.6bn reach for TelecityGroup. But datacenter M&A in the region has always been dominated by oversized transactions. In 2012-14, single acquisitions accounted for 78%, 57% and 68% of total deal value.

Read more about Western European MTDC in our recent market review.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

CyrusOne set to serve New York/New Jersey datacenter market

Mark Fontecchio

Contact: Mark Fontecchio

CyrusOne enters one of the top North American datacenter markets with the $400m purchase of Cervalis. The target has four enterprise-quality, multi-tenant datacenters (MTDCs) in the New York/New Jersey region that total a half-million gross square feet of space. As we reported in a recent in-depth analysis of the metro New York MTDC market, the region has been driven by financial services firms and connectivity. This deal hits both bullet points – about two-thirds of Cervalis’ 220 customers are in financial services, and it provides interconnected datacenters in one of the largest Internet hubs of New York City.

At 5.7x trailing revenue, the price tag is two turns higher than the median on North American hosting transactions since 2014. Why? Location, location, location – the NY/NJ market is one of the most highly sought. The acquisition is also a shot across the bow to anyone who thought that North American datacenter consolidation was nearing completion. According to 451 Research’s M&A KnowledgeBase, datacenter consolidation in the region has shot back up this year: deal volume is up 36% and is on pace to match 2013’s totals. Deal value is also set to jump 2.5x and hasn’t been skewed by any oversized transactions like 2013 was with IBM’s $2bn reach for SoftLayer.

Morgan Stanley and Allen & Company advised CyrusOne, while DH Capital banked Cervalis. We’ll have a full report on this acquisition in tomorrow’s 451 Market Insight.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Telecity scoops up European colo peer Interxion

Scott Denne

Contact: Scott Denne Penny Jones Mark Fontecchio

TelecityGroup dishes out 45% of its stock to nab fellow European colocation player Interxion in a $2.2bn deal. The acquisition is the largest European multi-tenant datacenter transaction that we’ve tracked (nearly twice the size of Digital Realty’s purchase of Sentrum’s datacenter portfolio in 2012). The combined company will be better positioned to deflect some of the regional pricing pressure resulting from increased investment in the European datacenter market.

The deal values Interxion at 6.3x trailing revenue, or 15.3x EBITDA. Interxion shareholders are getting 45% of the combined company, but Interxion’s revenue and EBITDA contributions are slightly less than that percentage. We’d attribute the valuation bump to Interxion’s higher growth rate – 11%, compared with 7% for Telecity last year. Though this move is all about building a larger regional player, it’s worth noting that Interxion, through last year’s pickup of undersea cable hub SFR Netcenter, gets Telecity an outlet into other markets.

Subscribers to 451’s Market Insight Service can access a detailed report about this transaction here, as well as a strategic update on Telecity’s fourth-quarter results.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Zayo pays premium for Latisys to continue datacenter push

Scott Denne

Contact: Mark Fontecchio Kelly Morgan

Zayo Group takes its sharpest turn yet toward datacenter and networking services with the $675m acquisition of Latisys. The deal, Zayo’s largest in three years, continues a push into more profitable lines of business, a theme that’s dominated nearly all of its last 17 purchases dating back to 2012.

Zayo has traditionally been known as a broadband services provider, and about half of its revenue still comes from that segment. But that percentage has dropped considerably in the past year, as Zayo has used M&A to increase its presence in physical infrastructure services such as colo and raw fiber, which generate 47% of its revenue but 53% of its profit.

Latisys, with datacenters in the US and London, is fetching a high premium from Zayo. Two of Zayo’s colo deals last year – Neo Telecoms and Colo Facilities Atlanta – fetched about 10x and 3x EBITDA, respectively. This one is for about 15x EBITDA, a premium due to Latisys’ ability to both fill gaps in Zayo’s US portfolio and get it a foothold in Europe.

Look for a more detailed report on Zayo’s pickup of Latisys in tomorrow’s 451 Market Insight.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

DCIM companies get in datacenters but can’t find exits

Scott Denne

Contact: Rhonda Ascierto

More datacenter operators are using datacenter infrastructure management (DCIM) software to connect silos of data about power, cooling, space and connectivity. Though early, widespread adoption of DCIM seems inevitable, and this has attracted a rash of suppliers – we track about 70 or so. But a growing, largely untapped market has not meant success for all suppliers. Large DCIM deals are hard won, with long sales cycles. That’s made it tough for small suppliers to get a foothold and, therefore, has limited the exit potential in the space.

While some smaller players are growing, more are becoming marginalized. There were four DCIM acquisitions in 2014, according to The 451 M&A KnowledgeBase, including suppliers of mature software being used by some large facilities. We believe none of the companies’ sale prices matched or exceeded the capital they raised. They include N’compass, which was bought for $5m (less than 1x TTM revenue, we believe) by OTCBB company AlphaPoint last month, and Power Analytics, a decades-old DCIM supplier that was picked up by a local patent licensing firm in July.

Nearly half (45%) of all DCIM revenue is driven by just five vendors, and the top three are giants Emerson Network Power, Schneider Electric and Panduit. We expect revenue to continue to flow to large and diversified players. They spend heavily on development, and they promise longevity, which is important: ideally, DCIM is for the life of the datacenter.

There are, however, a few small suppliers with unique intellectual property and solid revenue that could generate a return. But M&A activity in past years points to a lack of options for the dozens of other smaller providers struggling to stand out. A couple of the more successful smaller players are likely to merge. By pooling their resources, they could improve their prospects, brand and efficiency – perhaps attracting an extra funding boost at the same time. A rollup like this could also help the less-successful small vendors, although we’re not aware of any plans to date.

Subscribers to 451 Research’s Market Insight Service can click here for a detailed report on exits in the DCIM sector.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Telstra’s unusual, unsurprising Pacnet purchase

Scott Denne

Contact: Scott Denne Agatha Poon

Telstra reaches for Pacnet in an uncharacteristic – but rational – deal. The $297m purchase price, at a $697m enterprise value, makes Pacnet a substantially larger target than anything Telstra has bought. According to The 451 M&A KnowledgeBase, Telstra has made six acquisitions (including today’s) this year. Prior to today’s announcement, it had never paid more than $270m in a transaction (a mark it set earlier this year with the pickup of video software vendor Ooyala) in the past 15 years.

Also, like Ooyala and unlike Pacnet, most of its past acquisitions aimed to move the Australia-based telecom giant into ancillary offerings, while the Pacnet buy supplements a core business. Earlier this year, Telstra bought Ooyala as well as a video ad serving business, Videoplaza, to supplement that. It inked two acquisitions to bolster its healthcare software offering, after having scooped up the foundational piece of that business with the 2013 reach for Database Consultants Australia’s eHealth division. Telstra was a muted acquirer from 2010-2012, but even in its earlier phase of active M&A (11 deals between 2004-2009), it largely focused on snagging Asian Web properties.

With Pacnet, Telstra is obtaining assets such as datacenters and fiber and undersea cables that support its ambition to make the company a strong regional and global player in enterprise services, which is already a $4bn business annually.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Host Europe snags a competing German hosting company

Scott Denne

Contact: Scott Denne

Oakley Capital Investments unloads intergenia to an old friend. Host Europe, a Germany-based hosting and managed services provider that was owned by Oakley until 2010, is buying its competitor in a deal that values the target at $261m. The sale generates a 2.5x return to Oakley, which took a 51% stake in intergenia in late 2011 for $54m.

Past ownership isn’t the only thing that Host Europe and intergenia have in common. Both companies focus on German-speaking markets. Both have a large Web hosting business and are attempting to move upmarket with managed services and more SMB customers. And both have inked recent acquisitions in support of this move: intergenia nabbed internet24 in 2013 and Host Europe picked up a pair of companies that same year (domainFACTORY and Telefonica Germany Online Services) and, of course, intergenia today.

Despite the numerous small datacenter shops remaining and M&A growth across other sectors, 2014 hasn’t been a banner year for multitenant datacenter acquisitions in Western Europe. Only 36 firms in that region have been bought so far – compared with 29 in all of last year. And few transactions have been substantial. In fact, today’s deal is the largest purchase of such a company this year, according to The 451 M&A KnowledgeBase.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Carpathia to play up fed angle

Scott Denne

Contact: Scott Denne Michael Levy

Carpathia Hosting will again test the market’s appetite by putting itself in play by the end of the year. The colocation and managed services provider has been a consistent target of deal rumors since Spire Capital Partners, its owner since 2008, set out to raise its third private equity fund around the start of last year.

We understand that Carpathia made earlier approaches to potential buyers a year or two ago but felt that the market wasn’t properly recognizing the value of some recently developed, underutilized datacenter space. The company’s 2014 revenue is likely to near $100m and it could fetch $200-250m in a sale, given that the median TTM revenue multiple for vendors in this space for the past two years is 2x, according to the 451 M&A KnowledgeBase.

Carpathia has 10 datacenters in three different US markets with a healthy utilization rate of 76%, according to the 451 Datacenter KnowledgeBase , which makes it an attractive target. The company’s most compelling value, however, is its footprint with the federal government. Though it’s too small to handle large physical deployments from the federal government on its own, Carpathia meets compliance needs and has the experience that would be valuable to larger players chasing federal business, such as CenturyLink, QTS Realty Trust and Verizon Terremark.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

VMware needs more ‘Know Limits’, less of ‘No Limits’

Brenon Daly

Contact: Brenon Daly

As VMware lowers the curtain Thursday on its annual gathering of customers and partners, we have a suggestion for planning VMworld 2015: come up with a better tagline than this year’s conference. The slogan ‘No Limits’ was inescapable at this week’s confab, graffitied onto walls and parroted by most VMware executives. Undoubtedly, the focus-grouped message was meant to convey the image of VMware standing as a central provider in an IT landscape of boundless resources, all flowing together seamlessly.

The reality, of course, is not quite so idyllic. (Just ask anyone at VMworld who has gone hand to hand in the past with some of the company’s management products, which have now been further complicated by being bundled together in vRealize Suite.) Enterprise technology is messy and prone to breaking down. The solution to that complexity isn’t to add more.

Rather than pushing the idea of No Limits, VMworld would have been more responsibly taglined ‘Know Limits.’ We acknowledge that our tweak on the slogan knocks some of the enthusiasm out of it. And when a company needs to come up with $1bn of net new revenue next year (taking the top line from basically $6bn in 2014 to $7bn in 2015), enthusiasm is a key selling point.

The kicker on VMware’s selection of No Limits as its central message to the 22,000 attendees of its annual confab is that the company should know that there are indeed limits to technology. In fact, at last year’s VMworld the company was only just dusting itself off after having hit some limits of its own. It found out, for instance, that it wasn’t an application software vendor, so it divested SlideRocket and Zimbra as part of a larger reorganization in the first half of 2013.

There’s no doubt that VMware is a far healthier company at this year’s VMworld than it was at last year’s event. (For the record, the 2013 VMworld tagline was ‘Defy Convention.’) We would argue that the company is healthier because it replaced its freewheeling, expansive operations with a more focused and disciplined approach to business. (In other words, VMware imposed some limits on itself.) Strategically, it pared down its portfolio and simplified it into three distinct offerings. The net result? VMware is growing 50% faster in the two quarters leading into this year’s VMworld than in the two quarters heading into last year’s confab.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Shaw nabs ViaWest for $1.2bn

Scott Denne

Contact: Scott Denne Kelly Morgan Michael Levy

Canadian cable company Shaw Communications swoops into the multi-tenant datacenter market with the $1.2bn acquisition of ViaWest. Shaw may be wading in later than its Canadian telco peers, but the deal brings it instant scale. In terms of enterprise value, this is the fifth-largest purchase of a managed services vendor, according to The 451 M&A KnowledgeBase.

The transaction ($830m in cash and the assumption of $370m in debt) values ViaWest at 17.4x its 2013 EBITDA of $69m – a higher multiple than GI Partners was rumored to have paid for Peak 10 (12x), or Rogers Communications paid for BLACKIRON Data last year (15x), but less than Cogeco’s multiple for PEER 1 (22x). RBC Capital Markets served as adviser for ViaWest (as well as for Peak10), while TD Securities advised Shaw.

ViaWest will provide the hosting and cloud expertise needed to layer services on top of Shaw’s new fiber and datacenter assets, including a recently unveiled datacenter in Calgary and ENMAX Envision, the bandwidth service it picked up last year for $222m.

The sale of ViaWest should generate a solid return for Oak Hill Capital Partners, which bought the company four years ago (see our estimates of that transaction here).

Subscribers to 451’s Market Insight Service can find a more detailed report on Shaw’s purchase here.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.