Digital Infrastructure Sector M&A Heating Up as Pandemic Slows
More investment cash is flowing into the digital infrastructure sector. Investors are eying new targets as the pandemic seems to be getting under control. The move shows that a new wave of mergers and acquisitions is in the offing.
The news recently signaled that there are two new special purpose acquisition corporations (SPACs) featuring teams of data center executives. At the same time, the industry’s busiest consolidator is accumulating a massive round of new capital.
SPACs Are a New Wrinkle in Sector
The continued incursion of investor capital isn’t a revelation; however, the addition of multiple SPACs adds a new development is this trend. Moreover, this is apt to increase the number of publicly-held companies focused on digital infrastructure, observers believe.
A SPAC is an investment vehicle that goes public and raises capital from investors to acquire a private company. One early example of using a SPAC was Vertiv’s acquisition of GS Acquisition Holdings in 2020. Goldman Sachs executive David Cote created the SPAC. Investment companies bankroll a majority of SPACs. These companies form a group of advisors and executives to manage the acquired property. An affiliate of Goldman Sachs through its Permanent Capital Strategies team controls the SPAC .
The transaction poised Vertiv as a public company focused on the growth of data center facilities, a “pure play” investment the white hot digital infrastructure sector. Big investors are scrambling to meet the extraordinary demand for capital to fuel the shift to a data economy.
SPACs have become an intriguing option for companies interested in accessing the public market. That’s because a SPAC can bring companies to the public markets much faster than a traditional initial public offering (IPO) process.
Two Recently-Announced SPAC Deals
Two recently announced deals have participation from executives with long histories in the data center sector. Former CyrusOne CTO Kevin Timmons has joined the management team at InterPrivate Acquisition Partners. It is reportedly planning a SPAC targeting digital infrastructure. Former CyrusOne CEO Gary Wojtaszek and data center design pioneer Peter Gross are also working with InterPrivate as advisors. InterPrivate commented that its advisors and co-sponsors “bring deep sector expertise that make our SPACs attractive partners to potential merger targets, and act as credible validators to existing shareholders and prospective investors considering potential transactions. Certain of these individuals may also serve as Board members of target companies.”
More Digital Infrastructure SPACS
Also, Michael Tobin, a serial entrepreneur in the data center sector, is reportedly participating in an Amsterdam SPAC called Crystal Peak. Tobin is best known for his leadership of TelecityGroup, which was acquired by Equinix. He’s also held director or advisory roles at Leaseweb, Sungard Availability, IXCellerate, Chayora, DataPipe, and Teraco Data.
Colony Capital investment arm Digital Colony also has reportedly raised more than $4 billion for its second fund earmarked for digital infrastructure, according to Bloomberg. The report cites a memo to investors that says the fund is looking for an additional $2 billion to support its ambitious growth strategy. Colony Capital operates DataBank and Vantage Data Centers, along with a group of companies that span telecom towers, small cell and distributed antenna systems, and fiber.
Colony Capital used its previous $4 billion fund in a number of acquisitions that drove massive growth for Vantage Data Centers and DataBank. Vantage targets the wholesale and hyperscale data center market. The firm expanded its IT capacity by 90% last year and doubled the number of markets it serves. Colocation provider DataBank has become the platform for a series of acquisitions to implement Colony Capital’s “digital playbook.” The most notable of these is the purchase of zColo data centers, which added 44 data centers across 23 markets in the U.S. and Europe.