BroadGroup has underlined a high level of activity in the market for data centre M&A.
The firm continues to be contacted by new investors interested in the asset class. These include real estate investors and pension funds, keen to diversify and attracted by returns, tenant quality and low churn.
It also includes private equity who have previously ignored the sector, or hedge funds or VCs keen to exploit growth in cloud. These conclusions form part of a new paper by BroadGroup Consulting to be included in the next edition of Colocation Market Quarterly the European tracking service provided by the company.
The company believes that trade buyers, keen to scale up their operations, broaden and diversify their offerings, and potentially preparing for IPO are also evident, with other investment coming in from Asia. On the seller side, BroadGroup sees options emerging from big telcos and managed services providers to smaller and more regional plays, to existing investors in the space.
"A big challenge is that often the seller has the 'wrong' kind of asset," comments Steve Wallage, managing director at BroadGroup Consulting.
"They could be too small - private equity often finds the assets are below their minimum threshold. Old and low quality facilities is often an issue afflicting telco assets. Data Centres could be in unattractive locations. Another factor could be an unappealing business model or the complexity of ownership structure."
However, the group believes that the single biggest hold-up is valuation.
"Sellers point to the growth in data centre demand from IoT, Big Data, cloud and the challenges in securing new data centre sites, such as power, telecoms and planning/zoning," added Wallage.
"Pricing of recent deals, such as the Equinix acquisition of TeleCity at a 27% premium to its stock price may be cited."
But overall the group believes that buyers are wary of multiples beyond 15x EBITDA.
They also point out the weaknesses in many data centre assets, the threats and challenges in the industry, whether from technology, cloud, commoditisation or the size and scale of competitors.