Contact: Mark Fontecchio
Big datacenter companies are munching on the crumbs of their earlier feast. Massive datacenter consolidation in recent years has left the market with few large targets available, yet that doesn’t mean activity is dead. While overall hosted services M&A has dropped in value this year, the volume and value of asset acquisitions in that category has risen, according to 451 Research’s M&A KnowledgeBase. So far in 2016, big datacenter vendors are expanding their portfolios at a bite-sized pace.
Hosted services M&A value sits at $1.8bn year to date, off 53% from the same period last year. Yet asset sales are on pace to rise by a factor of 21 and account for 85% of 2016’s deal value, and have already surpassed the combined totals of 2014 and 2015. Even if you back out Equinix’s $874m divestiture this month of eight facilities to Digital Realty – an unusually large asset sale – such deals are still up 50% by volume and more than 8x in value.
Bolting on a few facilities at a time was always part of a multipronged strategy by the biggest datacenter operators, and it’s become more prominent as several of them have been taken off the market in the past couple years. Largest among them were Telx, Latisys and ViaWest in the US and TelecityGroup and e-shelter in Europe. With fewer sizable targets to pursue, providers have opted to purchase facilities singly or in small clusters, largely to expand geographically, resulting in transactions such as Digital Realty reaching for Equinix’s datacenters, CyrusOne paying $130m in a sale/leaseback deal for a facility in Illinois, Zayo buying a datacenter in Dallas and the always-active Carter Validus Mission Critical REIT purchasing facilities in Texas and Georgia.
We expect the trend to continue this year. While there are still some large potential whole-company targets, they are few and far between. Interxion is the most visible. Earlier this year, it was rumored to be in talks to sell to Digital Realty Trust. That provider’s recent acquisition of eight Equinix datacenters muted that talk. Meanwhile, Verizon divesting facilities from its Terremark buy in 2011, or CenturyLink shedding some of its datacenters, could make for big-ticket transactions.