Perspectives
LINCOLN PERSPECTIVE
The increasing need for data on a global basis, coupled with investments, like the bipartisan Infrastructure Investment and Jobs Act in the U.S. – funding for investments in critical, data center infrastructure – present attractive secular demand drivers within the space. With positive tailwinds contributing to strong growth over the next decade and beyond, there is steady conviction in the sector’s outlook.
There has never been a more alluring time for owners and investors to garner attractive multiples for their data center businesses and buyers are willing to pay all-time high prices given the long-term growth in the sector. There is a unique opportunity in the market for sellers as recent consolidation has led to a limited number of available, high quality investment opportunities in the coveted data center space. Additionally, there is increasing interest from large, multi-national strategics and financial sponsors looking to penetrate or expand their presence in the data center space, which is driving fierce competition in M&A sale processes.
In the last year, Lincoln advised on multiple landmark data center transactions – the sale of CIS Global to nVent, the sale of Anord Mardix to Flex and the growth capital raise for Vantage Data Centers. From these deals, Lincoln has distilled multiple key insights:
| Wide Ranging Strategic Buyer Interest: Given the attractiveness of the data center space and secular growth trends, strategic buyer interest is broad and not always predictable. Interest, on a global basis, ranges from i.) the logical data center players to ii.) tangential businesses looking to increase minimal exposure to the space to iii.) businesses with a thesis in the space, but no current data center exposure. It is critical to engage an advisor that knows, and has relationships globally, with the full spectrum of potential strategic buyers. |
| Unique Customer Dynamics: Large, global hyperscale (e.g., Amazon, Google, Microsoft) and colocation (e.g., CyrusOne, Equinix, K2 Data Centers, Vantage Data Centers, Virtus Data Centers) data center players dominate the space. Significant time and investments are required to win customers, but once “in,” they present tremendous growth opportunities. How customer relationships – strength, embedded nature, geographic presence – and concentration are presented to potential buyers and lenders is crucial to a successful transaction. |
| Attractive Long-Term Demand Visibility: The phased nature and timeline of data center builds offer significant visibility to manufacturers throughout the supply chain. With visibility spanning months to years, many manufacturers are afforded confidence in their near-term forecasts and longer-term outlook. Data center build-outs often happen in planned “phases.” Once suppliers are proven reliable in the early phases they are entrenched for future phases. The value associated with demonstrating revenue visibility through opportunity pipelines, bookings and backlog is immense. |
| Global Presence Is Key: The data center space is increasingly global. Hyperscale and colocation players are looking for supply partners with the scale to mirror their global presence and provide standardized service, quality, product breadth and technical expertise in any geography. Global reach for manufacturers supporting the data center supply chain was once a key differentiator, but is increasingly becoming “table stakes” as the industry continues to expand worldwide. |
If you are contemplating your exit strategy, financing needs or looking at acquiring a player in the data center space, contact a member of Lincoln International’s Energy, Power & Infrastructure team.
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