November 15, 2021 was a transformative day for the data center sector. In the course of an hour on a Monday morning, two merger deals were unveiled that each surpassed $10 billion in value, exceeding any previous deals in the industry.
First, American Tower announced plans to acquire data center developer CoreSite for $10.1 billion. The deal is a bold move into the data center business for American Tower, the world’s largest owner of wireless infrastructure, which has been actively exploring opportunities to monetize edge computing capacity at its thousands of tower sites.
As investors were digesting that news, investment giants KKR and Global Infrastructure Partners said they will acquire data center developer CyrusOne for $15 billion, surpassing the just-announced American Tower-CoreSite announcement as the largest M&A deal in the history of the data center sector.
The November 15 announcements came three months after Blackstone Infrastructure Partners closed a deal to acquire QTS Realty Trust for $10 billion and take the company private.
Major M&A action was one of the trends Data Center Frontier 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.”
“Don’t be surprised to see deals that span different types of digital infrastructure (data centers, towers, fiber, wireless) or to a bold market entry from outside the current data center sector,” we wrote. The American Tower bid for CoreSite certainly fits the bill.
These merger deals continue to reshape the digital infrastructure landscape, helping industry leaders grow faster, while enabling the creation of new operating platforms. 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 and the CyrusOne deal).
- Entering new geographic markets (Switch’s $420 million acquisition of Data Foundry, as well as the Equinix purchase of MainOne in early December to enter the African market).
- Provide companies with 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, and most recently Iron Mountain’s December 10, 2021 announcement of their plan to acquire equipment specialist ITRenew for $950 million).
- 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.”
One of the impacts of the 2021 mega-mergers is that there may be fewer options for investors on Main Street to participate in the data center boom. QTS, CyrusOne and CoreSite were all publicly traded real estate investment trusts (REITs), and as they are acquired and taken private, it will shrink the pool of data center REITs.
