Data centers: Takeovers reach record levels - also in Germany

The diamond looks rather inconspicuous from the outside. Simple functional building, hardly any windows, stuffed with servers inside. It is a typical Datacenter One data center. According to financial sources, the company is for sale under the code name “Project Diamond”. Demand is high, especially from financial investors.

Whether it's "Project Diamond" or other deals: Private equity companies are currently scrambling for data center operators. "The data center industry has become a magnet for private equity and infrastructure funds, driven in particular by strong growth in demand for computing capacity and attractive returns," says Matthias Sahm from the investment bank MorganStanley. Both the number of transactions and the deal volume have recently risen sharply, says Birger Berendes from the Bank of America. "During the first half of 2022, approximately $40 billion in transactions in the data center space were announced or completed," said Berendes.

According to market researcher Synergy Research, it is becoming apparent that the record level of the previous year will be reached in 2022. And that despite the fact that the economic uncertainty is making many financiers cautious, as chief analyst John Dinsdale told the Handelsblatt.

The interest results from an understandable calculation: Data centers are the backbone of the digital infrastructure. In the age of streaming and online dating, autonomous driving and Industry 4.0, operators can hope for stable returns. For the investment industry, this means: there are attractive long-term investments with plannable, contract-based income.

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Deals worth nearly $50 billion

By the end of August, Synergy Research counted 125 deals worth $29 billion in the data center industry. Another 19, worth $16.2 billion, have already been announced but are not yet completed. In addition, there are always – mostly smaller – transactions without much prior notice. Last year, deals totaled $48.9 billion.

Venture capital companies have become important financiers in these deals. While the share of investments in the period from 2015 to 2018 was 42 percent, it was more than 90 percent in the first half of the year, as determined by Synergy Research.

A typical example: The data center operator Switch has taken over the competitor Digital Bridge Group for eleven billion dollars - with the support of the Australian pension fund IFM Investors, which also has the Deutsche Telekom working together on fiber optic expansion.


In Germany the deals are smaller, but not necessarily less attractive. At Datacenter One, private equity owner Star Capital has a handful of bidders in the final round, according to several people familiar with the matter. Only those who bid more than 300 million euros progressed.

According to the seller, the company should achieve an operating result (Ebitda) of 15 million euros in 2023, but bidders estimate that it will be significantly less. The valuation is therefore at least 20 times Ebitda, which shows the attractiveness.

Other deals in the telecoms sector, such as fiber optic or cell towers, command lower valuations on average. However, it is unclear how quickly the transaction will be completed. Currently, the ratings of the seller and potential buyers are still apart.

Datacenter One is not the only data center provider currently on the market in Germany. Under the project name "Falke", the investor Emeram Capital is currently offering the data centers of its digitization company Diva-E, which are running under the name First Colo. Star Capital and Emeram declined to comment.

According to financial circles, three bidders made it into the final round, and one has already been selected for exclusive talks. A purchase agreement could be signed by the end of the month, whereby the company could be valued at almost 150 million euros.

At the beginning of the month, the investors Digital Transformation Capital Partners (DTCP) and Art-Invest Real Estate acquired a majority stake in the Frankfurt data center operator Maincubes and announced investments of more than one billion euros over the next few years. “The European data center market is currently being dominated by providers from the United States and Asia dominates,” explained DTCP partner Waldemar Maurer. Maincubes has the potential to establish itself as a leading European player.

Other deals in recent months included the purchase of Akquinet by Deutsche Beteiligungs AG in the spring and the acquisition of the data centers a year ago Northern Data for 365 million euros.

Data volume will triple by 2025

The trend is unlikely to end anytime soon. As a result of the digital transformation, companies have to process ever larger amounts of data - whether for social media or online shops, the control of logistics chains or the training of algorithms. Market researcher IDC estimates that the volume will almost triple between 2020 and 2025. "A lot of money was collected for investments in the industry, the takeover targets are few and far between," says a consultant focused on the industry. That drives the prices.

In short: not much works without data centers today, they are the factories of the digital age.


Various business models have established themselves in the industry – from renting parking space in a hall with electricity, cooling and security, known as “colocation”, to the provision of storage, computing power and other cloud services for corporations such as Amazon web services (AWS), Microsoft and Googleknown in the industry as hyperscalers due to their size.

However, in order to meet customer requirements, operators must invest heavily in new locations. Most of them cannot raise the high investments on their own. Even big providers like equinix and Digital Realty rely on partners if they don't want to strain their balance sheets too much, says Synergy research analyst Dinsdale.

The private equity companies, on the other hand, hope for long-term and stable income thanks to multi-year leases. Incidentally, it is similar to fiber optic or mobile phone networks, which are also a focus of investment.

short seller bet against the trend

All providers are currently investing heavily to expand their network of data centers. The large corporations contribute particularly to this. They build many locations themselves, but half of them are rented.

But there are also risks for buyers of data centers, says Malte Abrams of the investment bank Houlihan Lokey. “Investors need to ask themselves what is being hosted in the data center and whether that could be migrating to hyperscale public clouds.”

Before that, the well-known had recently short seller Jim Chanos warned. The large cloud companies could increasingly compete with classic data center operators such as Equinix and Digital Realty Trust with their own construction activities. "The story is that while the cloud is growing, it's its enemy, not its business," he told the Financial Times. Dealing with the "three most cruel competitors in the world" is a big problem. It remains to be seen whether the deals will lead to the brilliant results hoped for with "Project Diamond".

More: How Apple, Amazon and Google want to help the smart home achieve a breakthrough

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