Report: Data center M&A fast tracks towards another record year

data center
The data center sector heads towards another record year for mergers and acquisition, according to Synergy Research Group. (Pixabay)

The data center sector is on track for another record year for mergers and acquisitions, according to Synergy Research Group.

Synergy Research Group's data shows that 52 data center-focused mergers and acquisition (M&A) deals have closed in the first half of this year, which was an increase of 18% over the first half of last year.

The strong start points to another record year for M&A volume with eight more deals having closed since the beginning of July along with 14 more that have been agreed upon but are still pending, according to Synergy Research Group (SRG.)

SRG has tracked more than 300 closed deals in the data center sector with an aggregated value of over $65 billion since 2015. Acquisitions by public companies accounted for 57% of the deal value while private equity buyers accounted for 53% of the deal volume.

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In terms of deal value, SRG's data said the story was slightly different from the deal count because the trend was skewed by a small number of very large multi-billion deals. Eleven large deals were closed during the 2017-2018 timeframe, but there has yet to be a multi-billion deal closed this year.

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From a historical perspective, the largest deals that have closed since 2015 were Digital Realty's pickup of DuPont Fabros for $7.6 billion in 2017 and Equinix's acquisition of Verizon's data centers in 2016. In the latter deal, Verizon sold 24 data center sites to Equinix in a transaction valued at about $3.6 billion. Equinix also bought European data center provider TelecityGroup for $3.8 billion three years ago.

Equinix and Digital Realty, which are world's two leading colocation providers, have been the most aggressive consolidators in the data center industry segment. All told, they have accounted for 36% of the total deal value over the 2015 to 2019 period, according to SRG.

Other data center operators that have taken part in the buying binge include CyrusOne, Iron Mountain, Digital Bridge/DataBank, NTT and Carter Validus. While those companies have aggressively built up their data center rosters, some service providers, such as AT&T and Verizon, have sold off their data center assets in order to instead partner with companies.

"Analysis of data center M&A activity helps to affirm some clear trends in the industry, not least of which is that enterprises increasingly do not want to own or operate their own data centers,” said John Dinsdale, a chief analyst at Synergy Research Group, in a statement. “As enterprises either shift workloads to cloud providers or use colocation facilities to house their IT infrastructure, more and more data centers are being put up for sale.

"This in turn is driving change in the colocation market, with industry giants on a never-ending quest to grow their global footprint and a constant ebb and flow of ownership among small local players. We expect to see a lot more data center M&A over the next five years."