Digital Realty and Equinix drive bulk of colocation market M&A activity in 2018, research shows

Enterprise and hyperscale demand for datacentre capacity served to ensure the number of mergers and acquisitions (M&A) occurring in the colocation space remained high throughout 2018, research shows.

According to Synergy Research Group’s 2018 M&A colocation market review, while the amount of money generated by such deals last year was down on 2017 levels, there was a year-over-year uptick in the number of deals being struck overall.

There were 68 deals closed over the course of 2018, which were worth a total of $16bn, with the biggest thought to involve datacentre provider Global Switch, which is known to have sold off a 25% stake in its business for up to $2.8bn during 2018 to overseas investors.

“There were another 18 deals that were valued in the $100m to $1bn range, and 45 smaller deals that were each valued at up to $100m,” said Synergy, in a research note.

By contrast, in 2017, 48 M&A agreements were signed, collectively worth $20bn. These included Equinix’s sizeable $3.6bn takeover of Verizon’s datacentre estate and Digital Realty’s $7.6bn purchase of DuPont Fabros’s facilities too.

A longer view of these trends suggests the amount of money being spent by colocation providers on M&A is following an upward trend overall, said Synergy.

“The total value of M&A deals that closed over the 2017-2018 period was more than double that of the previous two years, which reveals the real underlying trend,” the research note continued.

This trend is being driven by colocation providers looking to rapidly add capacity to their datacentre estates to accommodate the growing number of enterprises looking to wind-down their own server farms, as well as the requirements of the hyperscale cloud and internet giants, said Synergy.

Equinix and Digital Realty are called out by Synergy as being the driving forces behind much of the M&A activity seen throughout 2018, with is data suggesting the pair were collectively responsible for around 40% of the value generated by acquisitions over the past four years.

The pair are reported to have paid out almost $23bn in M&A since 2015, with deals in all four of the major geographic regions of the world.

John Dinsdale, chief analyst and research director at Synergy Research Group, said – with no letup in demand for colocation capacity on the horizon – levels of M&A activity across the sector are likely to remain high for some time to come.

“There is a clear trend towards enterprises not wanting to own or operate their own datacentres, as CIOs focus more on features and services that they can provide to their internal clients and less on the complexities of running datacentres,” he said.

“As enterprises increasingly look to various outsourcing options, this is driving specialist datacentre operators to increase both the scale and the reach of their datacentre footprint.

“This bulking up is often best accomplished, or sped up, by acquiring other datacentre operators. We expect to see a lot more data center M&A over the next five years,” Dinsdale added.