Launch of new report at 4th Finance and Investment Forum for Data Centres
London, 1 December 2010 - A new research paper by consulting firm BroadGroup (http://www.datacentres.com/researchdownload/) proposes that data centres now represent a new asset class in their own right. The findings will be highlighted at the 4th Finance and Investment Forum for data centres which takes place in London 9th December.
The paper cites models favoured by investors such as REITs with blue chip clients, long lease periods, annual rent escalators, sticky clients and formidable lease clauses. Digital Realty Trust (http://www.digitalrealtytrust.com/) is identified as a leader in this sector, with a market capitalisation of more than USD5 billion and a much higher enterprise value.
Recent M&A and stock performance in the sector also reveals high growth stories with 2010 more measured, but following on from a stellar 2009. UK quoted pan European data centre operator TeleCity Group (http://www.telecitygroup.com/) now has a market capitalization of around £900m. Above all, Investors wish to gain access to ‘growing tech stocks’ with high revenue growth and relatively stable fixed costs.
“As the ‘physical part of the cloud’ or ‘non-virtual element of the virtual economy’, data centres can even stake a claim to be a ‘cloud play’ for investors,” commented Steve Wallage, author of the research and managing director at BroadGroup Consulting, “with some also offering direct cloud services of their own.”
The research document suggests that the third party data centre industry is still a relatively immature one – in market structure, productisation, marketing and globalisation. There are still relatively few quoted players and many fragmented markets. This has particularly attracted private equity investors who see scope for moving to IPO, and scaling up regional players.
A number of players in the US have floated, but there are more now actively considering this opportunity. M&A in 2010 included several notable acquisitions but also entry into the sector of private equity firms including Montagu (http://www.montagu.com/) and Bridgepoint (http://www.bridgepoint.eu/) . BroadGroup estimates that there are now around ten private equity groups in the US with holdings in the data centre space.
The research suggests data centre markets still confront challenges, of which the two most pressing are the risks of over-supply and the lack of experience and expertise of new entrants. For new project investment, anchor tenants, security and reliability are critical.
BroadGroup (http://www.broad-group.com/) does not believe over-supply is an issue as demand is now much broader, deeper and more varied. It predicts that the market structure will look a lot different in 2-3 years time.
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