Records Set in 2020 as Robust Data Center Activity Continues
Mark Bauer, Carl Beardsley 05/20/2020
The world has entered a time of extreme uncertainty, bringing unfortunate lows such as the largest unemployment rate of the 21st century (14.7%), a 21-year low crude oil price bringing oil futures below zero, and industries such as airlines losing tens of millions per day. Although ill-fated news continues to surface almost daily, it hasn’t completely drowned out success, and even growth in many circumstances, with several industries yet to be affected as negatively. Luckily, data centers around the world continue to be on this list as necessary cogs allowing vital processes throughout the world to continue churning. So, what’s happening?
Positive Stock Performance
Although it has recently begun a return climb back up, the S&P 500’s Information Technology sector took a massive hit last month falling by about 19%, a significant decrease relative to recent performance. Comparatively, the giants of the data center world led by names such as QTS, Equinix, and Digital Realty, all increased by 7%, 7%, and 16%, respectively, in the same time frame as the S&P500-IT’s decrease. Both Equinix and Digital Realty have large projects and future plans currently in motion that we’ll address further below, nevertheless, these projects, along with the need of commercial data centers, create a situation in which growth is unavoidable. If we go back to basics, colocation centers (i.e. data centers that lease space to larger companies) are fueling everything that goes on behind the scenes for the world’s largest companies that are keeping virtual business alive today. With that, virtual business and internet bandwidth usage has continued to grow within these companies throughout recent years even without the world’s current situation. With virtual work and internet access now being an absolute necessity to even think about doing business, the industry has no choice but to grow.
Record Merger and Acquisition Activity
Recent years have shown great merger and acquisition activity, however, the first third of 2020 has brought absolutely massive transactions, with major players seeing the circumstances as immense opportunity. Digital Realty returns to the story with a massive $8.4 billion dollar acquisition of InterXion located in the Netherlands, in pursuit of interconnection via a European presence. Although not nearly as sizable, there were 27 other mergers and acquisitions led by names such as Compass ($100 million acquisition) and Vantage, according to the Synergy Research Group, that brings 2020’s M&A activity over that of 2019 in only four months. Candidly, recent years haven’t been as lucky when it comes to absolute behemoths such as Digital Realty’s recent acquisition, however, the timing and overall completion of the transaction is undoubtedly a testament to the strength and confidence of data centers around the world; even more so impressive in the midst of dozens of industries with stalled, overly reworked, and completely cancelled transactions.
Fundraising Continues for Growth
Equinix steps back into the spotlight to showcase its plans across the world, with its newest project being backed by over a billion dollars. In conjunction with the Singaporean wealth fund GIC, Equinix has pledged $1.25 billion to fund xScale, a tier of three data centers throughout Japan touting state of the art build-outs. Other projects follow close behind in magnitude with Sabey Data Centers gathering $800 million in funding to expand their presence throughout the United States, as well as Tierpoint harnessing $320 million from investor groups for expansion and debt restructuring. In other words, the industry hasn’t slowed and others are willing to put their money on it.
Overall, great growth and positive performance is ubiquitous throughout the industry, with impressive stock performance relative to the SP500, record M&A activity and a continued stream of funds for future and existing projects. Be sure to reach out if we can help you take advantage of your current situation in any way possible.
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