EQT to acquire global data center provider EdgeConneX

By Alexander Bergmüller and Huang Haozhe (IE Business School), Affan Ahmed (King’s College London)

Overview of the deal


Acquirer: EQT Infrastructure

Target: EdgeConneX

Estimated Total Transaction Size: $2.5 – $3 billion

Closed date: Q4 2020

Target advisor: Evercore

Acquirer Advisor: Goldman Sachs

On August 19, EQT Infrastructure IX, a private equity manager, has announced to acquire EdgeConnex, a leading global data center provider serving the fast-growing Edge and HyperScale solutions from Providence Equity Partners. The rumour about the acquisition has already surfaced last year in October, and it was estimated to be worth $2.5 billion. After the transaction, EQT will support EdgeConneX in expanding globally at a time when the need for data grows exponentially, driven by cloud, network, content, and new technologies such as Artificial Intelligence, 5G, Autonomous Vehicles, Virtual Reality.


The deal came amid a steady stream of dealmaking for data centers, which are benefiting as companies around the world increasingly rely on third parties to manage their data.

“EQT has followed EdgeConneX’s journey from its early years to its growth into a top data center industry player. EQT looks forward to working with the team in continuing to grow the business and identify new expansion opportunities.” — Jan Vesely, Partner at EQT Partners

Company Details: EQT Infrastructure

EQT is a differentiated global investment organization with more than EUR 62 billion in raised capital and around EUR 40 billion in assets under management (AuM) across 19 active funds. EQT funds have portfolio companies in Europe, Asia-Pacific and North America with total sales of more than EUR 27 billion and approximately 159,000 employees. EQT works with portfolio companies to achieve sustainable growth, operational excellence and market leadership.


Founded in 1994, headquartered in Stockholm, Sweden

CEO: Christian Sinding

Number of employees: 700

Total capital raised: EUR 62 billion (as of 31/08/2020)

LTM Revenue: EUR 606 million


Company Details: EdgeConneX


EdgeConneX provides a full range of data center solutions worldwide, from Hyperlocal to Hyperscale, from purpose-built to build-to-order, working closely with our customers to offer choice in location, scale, and type of facility. Delivering flexibility, connectivity, proximity, and value, EdgeConneX is a global leader in anytime, anywhere, any scale data center services for a diverse portfolio of industries including Content, Cloud, Networks, Gaming, Automotive, Security, and more.


Founded in 2009, headquartered in Herndon, Virginia, United States

CEO: Randon Brouckman

Number of employees: 160

Estimated LTM EBITDA: $125 million (as 31/08/2020)

Estimated EV: $2.5 billion

LTM EV/EBITDA: 20x


Short-term consequences


EQT Infrastructure IV is expected to be 80-85% invested with this transaction. EQT will thus actively support the development and growth of Edge ConneX in both, existing and new markets globally. It expressed its consideration of bridging or extending the fund, or by using the secondary market earlier this year. Such measures are necessary to ensure sufficient capital to keep investing. The ticket sizes for the fund typically range from between €100 million to € 600 million. EQT Infrastructure has been an active investor in digital assets. On a related note, in May, it completed the $14.3 billion acquisition of Zayo Group and its telecom and data centre networks. EQT is expected to generate substantial returns in the mid-to-longterm.

Since it was founded in 2009, EdgeConneX has built more than 40 data centers in 29 locations, most data centers are located in the United States. It currently has four locations in Europe, which are Amsterdam, Munich, Dublin, Warsaw. Demand for computing resources requires high-density power to fuel the growth in AI, machine learning, big data, and more. Many older, legacy data centers struggle to cope with the high-density power demand. This growth opportunity for hyperscale data centers, an optimized type of data centers for speed and data storage looks more attractive during the global pandemic. Burgeoning demand for public cloud services and continued strong growth in social networking have added to the urgency for increasing investment in hyperscale data centers. In addition to providing lower latency, EdgeConneX offers customers a distributed wholesale pricing model, which makes it cheaper to locate servers closer to network edge. With the help of EQT, there will continue to be substantial opportunities for EdgeConneX to continue to develop critical infrastructure to support its customers’ needs.


Long-term Upsides


Data centers are expected to make up 20% of the world´s electricity power. The global market for edge data centers is expected to grow from $4 billion in 2017 to $13.5 billion in 2024, with a CAGR of 18%. Edge data centers, which refer to smaller facilities close to the populations they serve. These small and specialized data centers are going to be instrumental for a number of sectors. For example, in banking, edge data centers provide low latency (the amount of time it takes from data to travel from one area to another) that benefit traders and asset managers. Video streaming and virtual reality will also demand edge data centers do deliver lower latency performance. The promising market growth and market demand for data centers promise organic growth in the longterm, generating continuous cash flows in the long run.


Dealmaking in the data center sector has been on the rise since 2015. There has been a total of 388 data center-related deals that have closed, with an aggregated value of $90 billion. Private Equity buyers accounted for 57% of the volume. Digital Realty's $8.4 billion deal to buy Interxion, the largest ever deal in the data center sector was completed earlier year. Another leading acquirer has been Equinix, which bought Verizon data centers ($3.6 billion, 2017) and Telecity ($3.8 billion, 2016). Further consolidations are expected in the future.


Risks and Uncertainties


Data protection plays an important role here. Regulatory worries about data protection could get in the way of data center investment. GDPR, the EU’s data protection regulation, which takes effect on 25th May 2018 is pertinent for data center operators. Data center operators are controllers of their own data, but maybe also be processors of data that are controlled by third parties (their customers). Data center operators potentially have dual liability under the legislation, so that they need to spend more on legal compliance.


Competition is another risk that needs to be taken into account. Driven by the advent of big data, massive capital has been flowing into network, data center, and fiber-based assets. However, the high level of interest in creating competition for opportunities, nudging deal valuations higher. KRR, a private equity firm committed $1bn this year to set up a new hyperscale data center builder in Europe, Global Technical Realty. GIC, Singapore’s sovereign wealth fund, formed a $1.0 billion joint venture with Equinix to develop hyperscale data centers in Europe last year. Investors have expressed their cautiousness about the pricing of assets, becoming more selective about opportunities. With more financial buyers entering this field, the margin, the competition is likely to increase.


“EQT brings significant financial resources and digital infrastructure industry experience which EdgeConneX will use to accelerate growth and invest in new data centers around the world.” — EdgeConneX CEO Randy Brouckman

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