Canberra Data Centres Ipo

Canberra data centres ipo

BroadGroup Consulting works with investors around the world.

Canberra data centres ipo

We have conducted over 30 commercial due diligence projects in the sector.

The data centre sector has historically been funded by a specific set of financial institutions, often property funds and private equity, who understood the sector.

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Given the niche status of the sector, this was a relatively small group in the Asian market.

However, we have seen recent interest from not only a much larger number of investors but also an increasingly diverse set of Asian investors.

This latter group includes sovereign wealth funds, pension funds and TMT investors.

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What is driving such interest?

Investable Assets

A common challenge for many investors has been the lack of investable assets, both in terms of number and quality.

We are seeing growing opportunities for public market investors. Equinix, quoted in the US, now has a market capitalization of over $37 billion.

Global Switch, looking to IPO in Hong Kong in 2019, is looking for a market capitalization of over $12 billion.

More Asian start-ups are entering the sector, and seeing growing investor interest.

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This has been well supported by recent valuations in the sector – for example, Equinix acquiring Metronode, from Australia, for around 16X 2017 revenues.

Industry fundamentals

The data centre sector enjoys many elements that attract investors.

These include strong customer loyalty and stickiness, barriers to entry, high margins and ability to withstand economic downturns.

This has also attracted investors who have made strong returns from (at least somewhat) comparable sectors such as towers.

Industry growth drivers

The Asian co-location market has grown around 12-14% in recent years led by growth in data requirement, cloud, increased outsourcing and greater regulation.

There are a number of drivers from IoT to 5G to AI.

The key driver at the moment is the expansion of the hyperscale cloud players.

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This includes US giants such as Amazon and Google, as well as the Chinese behemoth, such as Baidu and AliBaba. Their spend on data centres grew around 45% in 2018.

Their data centre footprint is also still focused on developed and domestic markets, with around 40% of hyperscale data centres still in the US.

What next?

There are few in the industry who do not expect 2019 to also be a strong year for growth.

Canberra data centres ipo

Of course, not every player will be successful, and it remains difficult for new entrants in the sector with no experience or track record, or to start offering services from a new location.

A challenge is to think differently from other investors.

Attractive data centre businesses going through a sales process have seen upwards of 100 expressions of interest, including potential trade and financial buyers.

The exit strategy of many such businesses is to be acquired at some point.

If we look at why M&A takes place, increasing market share has been the key driver for most of the acquisitions in the data centre sector.

We expect the desire to enter new markets to increasingly drive M&A.

The larger players do not like to enter a country where they have no experience, relationships or credibility.

Canberra data centres ipo

As they see the growth in emerging regions, they will look to acquire an existing player.

Examples of markets where we would expect global players to make acquisitions over the next 12-24 months include India, Vietnam, Thailand and China.

A less developed theme in the sector has been M&A driven by the desire to add new services and products.

Growth in the traditional data centre space has been strong, and larger players have been concerned about moving away from their core competence or potentially competing with customers.

However, we believe this is starting to change, as global players look to leverage their global footprint, partnerships and networks.

Canberra data centres ipo

We have already seen Equinix acquire a professional; services firm, Nimbo, focused on cloud.

Digital Realty has developed a significant stake in Megaport, which offers global connectivity to cloud and network service providers.

A potentially successful strategy for investors is to try and understand who the major data centre players will want to invest in next.

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