Soaring interest in data centres prompts surge in M&A activity

There has been a dramatic increase in investor and real estate market interest in data centres. PwC Germany partner Cay-Marco Fritsch, whose focuses are corporate finance and M&A activity in the digital infrastructure and business services area, said that in Europe there is currently, “tremendous opportunity for existing operators to be more active as well as for new entrants to come into the market.”

There is an awareness of trends affecting digital infrastructure and data centres in particular and, in terms of capacity, the market is structurally underserved compared to where it needs to be in 10 years’ time. “In that environment we see existing operators jockeying for position, enlarging their positions securing growth beyond organic growth. But also, there are new entrants coming into the space.”

Fritsch said it is particular interesting to observe new entrants joining the market because they can very often differentiate themselves. “The market is getting more and more discerning, so they bring new angles to existing situations and therefore are very much welcome. There are plenty of opportunities for for new entrants.”

Speaking to Real Asset Insight’s Richard Betts he said that M&A activity is currently particularly lively “in data-centre land across Europe”.

There are several reasons for this. First, existing operators want to grow beyond organic growth and that is often only possible through M&A. Furthermore, “when we have new operators coming into the sector they do that through M&A and therefore you’ve got a base level of activity in the sector.”

Secondly M&A is underpinned because the industry is growing at between 12% and 15% every year and operators want to create strategic scale.

“There’s a lot of operators who are confronted with challenges as to how they can keep pace with this growth, how they can find the capital to invest to upgrade facilities etc.”

Fritsch said the third reason for the level of M&A activity is that across Europe there is a surplus of capital pushing into the data centre sector. “There’s still a scarcity of assets so therefore that creates an interesting dynamic on the M&A side.”