Billion Dollar Deals Are Transforming the Data Center Industry

The biggest merger in the history of the data center industry is nearing completion. Last week the shareholder of QTS Realty Trust voted to approve the company’s $10 billion acquisition by Blackstone Infrastructure Partners, clearing the way for the merger to be completed tomorrow.

It’s the largest of a series of merger deals that are reshaping the digital infrastructure landscape, helping industry leaders grow faster while enabling the creation of new operating platforms.

Major M&A action was one of the trends DCF highlighted in our 2021 forecast (Eight Trends That Will Shape the Data Center in 2021), in which we predicted “a big year for data center mergers and acquisitions, including some larger transactions.”

Deals don’t get much larger than the QTS transaction, which values the company at $10 billion, including $6.7 billion in equity and the balance in the assumption of debt. QTS operates more than 7 million square feet of data centers in in 20 markets across North America and Europe, including large data center campuses in Northern Virginia, Chicago, Dallas, Atlanta and Portland.

On Thursday, QTS announced that shareholders had approved the $78 a share offer from Blackstone, which will make QTS a private company.

“I thank our stockholders for their strong support of the transformative transaction with Blackstone, which will provide compelling value to stockholders and position QTS to better serve customers’ expanding data center infrastructure needs,” said Chad Williams, Chairman and CEO of QTS.

Why M&A Matters in Digital Infrastructure

The current round of M&A and consolidation has been underway for about five years, amid a historic influx of investor capital for digital infrastructure. Acquisitions can accomplish a number of objectives in the growth trajectory of a company. In the data center industry, the deals in 2021 have illustrated these major themes:

• Allowing well-funded players to rapidly achieve greater scale (Blackstone-QTS)
• Entering new geographic markets (Switch’s $420 million acquisition of Data Foundry, as well as the Equinix purchase of a Bell Canada portfolio last fall for $750 million).
• Provide companies access to new strategic lines of business (Evoque’s deal to buy Foghorn Consulting to launch an “application-first” cloud services business, or Equinix’s purchase of bare metal server specialist Packet in 2020).
• Access to public markets via a SPAC or special purpose acquisition corporation (Starboard Value’s purchase of colocation specialist Cyxtera).

“Given the explosion in the amount of data that is being generated and has to be processed, along with the ongoing boom in both enterprise and cloud markets, it is little surprise that data centers have been such a hot ticket in the M&A arena,” said John Dinsdale, a Chief Analyst at Synergy Research Group. “The data center and colocation market has been constantly evolving over the years and this will continue. The almost inexhaustible demand for data center capacity has led to a drive to find new sources of capital funding and there continues to be a long list of willing investors.”

The Billion-Dollar Transactions

Here’s a look at the M&A action over the last five years, through the lens of billion-dollar deals where the sale-price has been publicly disclosed. This list isn’t exhaustive, as it doesn’t include a number of major M&A deals involving private firms, where the sale price has not been disclosed.

• $10 Billion: Blackstone Infrastructure Partners acquires QTS Realty Trust (pending, 2021)
• $8.4 Billion: Digital Realty acquires European data center specialist Interxion in 2019, adding scale in Europe and kick-starting a sharper focus on interconnection services.
• $7.8 Billion: Digital Realty purchases wholesale rival DuPont Fabros Technology in 2017, giving it a dominant position in Ashburn, the largest hyperscale market..
• $5.3 Billion: In the first SPAC deal for the data center industry, GS Acquisition Holdings acquires data center equipment vendor Vertiv. As a public company, Vertiv’s shares have surged since the 2020 deal to boost the company’s market value to $9.75 billion.
• $3.8 Billion: Equinix expands into Europe in a huge way by buying TelecityGroup and its 40 data centers and 1,000 net new customers (2016).
• $3.6 Billion: In 2016, Equinix acquires a portfolio of 24 Verizon data centers, including the strategic NAP of the Americas facility in Miami.
• $3.4 Billion: In a SPAC deal in 2021, Starboard Value Acquisition Corp. buys Cyxtera. which becomes a public company.
• $2.8 Billion: In 2016, CenturyLink sells 57 data centers to Medina Capital Management and BC Partners, who use the facilities to create Cyxtera.
• $1.7 Billion: In an East Meets West deal between regional players, Peak Ten buys ViaWest, leading to the creation of a new national network that rebrands as Flexential.
• $1.3 Billion: Singapore’s Mapletree Industrial Trust buys a portfolio of 29 data centers from Sila Realty Trust (formerly Carter Validus Mission Critical REIT), boosting Mapletree’s presence in the U.S. data center market.
• $1.3 Billion: In 2017, Iron Mountain makes the largest of a series of acquisitions, buying IO Data Centers.
• $1.1 Billion: Evoque Data Center Solutions is formed from the $1.1 billion acquisition of a portfolio of 31 AT&T colocation centers by Brookfield Infrastructure Partners (2019).

What’s missing? The private transactions with the scale and strategic impact to make the list likely include Digital Bridge’s acquisition of Vantage Data Centers, the EQT Infrastructure deal to buy EdgeConneX, Macquarie’s majority investment in Aligned, and NTT Communications’ two-step acquisition of RagingWire Data Centers.

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