KBS - Digital Infrastructure and Data Centres - Market Insight

M&A ACTIVITY CONTINUES TO RISE WITHIN UK DIGITAL INFRASTRUCTURE

During the past five years, Digital Infrastructure M&A has focused heavily on services and complementary businesses relative to Data Center operations. This activity remains on an upward trend, while private equity involvement in edge data centres is also rapidly growing. There are a number of reasons for this surge in growth and acquisition appetite, with the main focus due to anticipated increase in demand for cloud computing and data center services, alongside growth in the availability of data center assets. On the latter, we are seeing the rise of edge data centres. According to sector research, hyperscale data centers remain important, but future demand requires ‘low latency’ solutions that minimise latency, jitter and enable real-time automated responses. As demand for edge data centers continues to grow, we are seeing larger players start to acquire smaller facilities, as well as ongoing consolidation, with a number of current players look to expand their portfolios.

On the demand-side, three key trends are driving this:

1. Digitalisation of business activities, including the use of Artificial Intelligence (AI); 2. Economic pressures on businesses creating a focus on reducing IT costs; 3. Increasing use of streaming and internet services globally.

Private equity investment has been pivotal in the recent development of this market space, seeing most data center investments as “safe havens”, and typically deploying capital through larger funds that have longer-term investment horizons, compared to those of the broader private equity space. This sector space benefits from progressive and non-cyclical growth, therefore, it remains a very attractive and resilient target space for prospective acquirers and investors, particularly private equity, infrastructure investors and real estate/strong asset funds.