2020 to be a ‘bumper year’ for data center M&A – amid COVID-19 – as value surpasses 2019 total

Saturday, April 25, 2020
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While for many industries around the world 2020 looks to be a financially difficult period, there are some industries that are thriving. One of these is data centers. Recent analysis by the Synergy Research Group has brought to light that data center M&A had an extremely strong quarter in 2020. So much so that it’s already gone beyond 2019 levels.

This means that in less than four months, the value of closed data center deals is already more than the total of 2019. A large component of this 2020 figure is from an $8.4 billion deal, wherein Digital Realty acquired Interxion. This was the biggest deal ever to take place in the data center industry. Combined with the other 28 closed deals that took place in the first quarter of 2020, data center M&A reached $15 billion.

Other notable acquisitions that completed in 2020 were the infrastructure arm of Macquarie Group paying $1.7 billion for an 88% stake in AirTrunk. Another deal, the purchase of Zayo by EQT and Digital Colony was for $1.4 billion.

For the last five years, since 2015, Synergy has monitored the M&A data center market. Over this five year period, a total of 388 deals have taken place. There is still some way to go for 2020 to become  the biggest year ever, that title is currently held by 2017. In the year of 2017, the total was $20 billion. While there is still a large sum of money between the current number and the record, that target is well within reach if investment continues for the rest of 2020.

With economies the world over in the grips of a global pandemic, there is no guarantee that investment will continue at such a pace. However, what this has shown is that cloud computing and usage is still in high demand, meaning the need for data centers will also still be required. The chief analyst at Synergy, John Dinsdale believes that the industry will hold out, particularly as there are multiple deals in the pipeline that are already close to completion.

On this subject, he made this statement:

‘In less than four months, the M&A value has already surpassed 2019, in addition to which we are aware of 17 more agreed deals that are pending closure plus a few other potential multi-billion dollar deals.’ Coupled with this, he continues by saying, ‘Outsourcing trends and the aggressive growth in cloud services are driving ever-growing demand for data center capacity, which in turn is fueling both industry restructuring and a need to find new sources of investment capital.’

Despite coronavirus having a hugely detrimental effect on economies the world over, some sectors are able to continue performing. For example, the software market is in a strong position because comparatively it will be less impacted, other markets will actually see a boost as consumption patterns are changed by the shifts societies have had to make to contain the virus.

For service and cloud providers, more of the population are being forced online, which increases the demand on data centers. John Dinsdale commented on this by stating, ‘There will be a lot more activity via remote tools and apps which will serve to ramp up network and service traffic – think collaboration tools, file sharing, e-commerce, digital entertainment, streaming, etc.’

It has taken a shift in perspective, but many more businesses are now aware of how they could operate remotely by utilising the cloud. Dinsdale makes the point, ‘There is now plenty of information and data points emerging about substantial increases in remote working, Internet traffic, time spent online, streaming, videoconferencing, cloud gaming and number of devices connected to home Wi-Fi. There have been big increases in [Cisco] Webex, Netflix installs, YouTube, YouTube Gaming, Zoom, Twitch audience, etc.’

All of this goes to make a strong case that the cloud computing and data center industry are in a strong position to weather the uncertainties that Covid-19 has brought upon the world. While there is still a way to go before it’s a record breaking year for data center M&A, time will tell whether we get there.