Emerging datacenter markets could see emerging M&A activity

Contact: Ben Kolada

With high utilization rates and an abundance of available targets in key North American multi-tenant datacenter (MTDC) markets, large acquirers could look to absorb smaller operators in their markets. A recent report by our colleagues at Tier1 Research notes that increasing utilization in the 14 markets under review could influence large acquirers to look to M&A to alleviate their own constraints. Further, acquirers should find several interested sellers, especially among the pool of smaller operators that have historically run into barriers preventing their own expansion.

The report highlights increasing utilization throughout our market set. While utilization in the top six North American markets is quite high, at over 80% despite continued incremental expansions, the 14 major markets analyzed on average also have a high utilization rate of approximately 79% for 2011. Increasing utilization could cause larger providers to look to M&A to keep pace with demand. And they wouldn’t have to look far. More than 170 MTDC providers operate in our market set, with an average of 19 providers operating in each of the markets that we analyzed.

Large providers’ acquisition interest goes hand in glove with the difficulties that smaller operators are facing. Given the number of smaller datacenter providers in each market (from a single facility to a handful of facilities), the increasing utilization of built capacity, the continued lack of access to capital for the smaller datacenter providers to expand and the increasing demand for emerging major markets, several of the smaller companies in these markets make attractive acquisition targets for companies looking to expand into additional emerging major markets more quickly than by building.