What Recession? Cloud Computing Lures Billions in PE Data Center Deals

Despite inflation, the ongoing Russia-Ukraine conflict, and the looming threat of recession, private investors throughout 2022’s first half poured billions of dollars into the data centers that power cloud computing.

This week, Synergy Research Group released new numbers supporting those findings. Analysts said 87 merger-and-acquisition deals closed between January and the end of June, totaling $24 billion.

More activity is coming.

Synergy says pending agreements worth $18 billion are expected to close before the end of the year — and that’s even in the face of a global economy that appears more fragile every day.

All told, 2022’s data center investments around cloud computing look to at least match 2021’s record-breaking M&A activity, Synergy noted. The research firm said it tracked 209 deals that closed last year for an aggregate value of more than $48 billion. That amounted to a 41% increase over 2020 — which itself went down as a record year due to its $34 billion in deals.

Notably, Synergy analysts said, private funds account for much of the infusion into data centers. That’s because cloud computing continues to stand out as the go-to technology for organizations keen on digital transformation. Indeed, cloud computing supports everything from remote work to entirely new business models.

Consider that between 2015 and 2018, private equity provided 42% of deal value in the data center sector, according to Synergy. That figure ballooned between 2019 and 2021. During those two years, private equity share of the total deal value rose to 65%. Compare that to the first half of 2022, where private equity share now stands out at more than 90%, Synergy said.

Who’s Leading Data Center Investments Tied to Cloud Computing?

So far this year, four private-equity acquired companies rank among the top 15 colocation operators worldwide, Synergy analysts said. Furthermore, these firms hold the No. 3-6 spots in the U.S. market, trailing Equinix and Digital Realty. Those providers are:

• CyrusOne, purchased for $15 billion by KKR and Global Investment Partners.
• Switch, which DigitalBridge intends to buy for $11 billion.
• CoreSite, snapped up by American Tower in 2021 for $10.1 billion.
• QTS, acquired by Blackstone last year for $10 billion.

It’s no surprise that behind this momentum lies a thirst for cashing in on the cloud computing craze.

Synergy Research Group’s John Dinsdale

“There is an ever-increasing demand for data center capacity, driven by rapidly growing cloud markets, aggressive expansion of hyperscale operator networks and continued growth of data-rich digital services,” said John Dinsdale, a chief analyst at Synergy Research Group. “The trouble is that building and operating large fleets of data centers is highly capital intensive. Even the biggest data center operators have had to seek external funding to allow them to meet growth targets while protecting their balance sheets. As the level of resulting M&A activity has shot through the roof, virtually all of the incremental investment has come from private equity.”

Yet even without private equity resources, there’s a lot of traction behind data centers. To wit, this week, Oracle Cloud and Google Cloud both opened new “regions” (industry-speak for “data centers”). Oracle Cloud went live in the Mexican State of Querétaro while Google Cloud bid bonjour to Paris.

Synergy’s new findings come just a week after the firm’s analysts issued an alert that public cloud computing generated $126 billion in just the first quarter of 2022. Some industry observers predict demand for cloud computing will slow in line with a recession, but the numbers have yet to back those forecasts.