- Equinix just inked a $15 billion joint venture deal with private equity to bring its xScale data centers to the U.S.
- Private equity has been pouring cash into data center investments in recent years
- But one Equinix exec and a Synergy analyst warned that some investors are corner-cutting cowboys
Investors are hungry for data center opportunities. Case in point: Equinix just inked a deal to form a $15 billion joint venture with Singaporean sovereign wealth fund GIC and the Canada Pension Plan Investment Board, with aims to build 1 gigawatt of new data center campuses in the U.S. But as Equinix xScale Managing Director Krupal Raval noted, not all investors are created equal and “cowboys” looking for a quick return could ruin things for everyone.
“There’s an overwhelming amount of capital that’s chasing this space,” Raval told Fierce. That’s in part because of tailwinds from cloud and artificial intelligence growth. It’s also because data centers are currently a better real estate investment than, say, office buildings.
As Synergy Research Group noted in August, there have been 1,381 data center M&A deals, including acquisitions, minority investments and joint ventures, worth a collective $276 billion since 2015. Deal volumes peaked in 2021 and 2022, and according to Synergy’s tally, 2024 is poised to be another big year, with a total deal value approaching $40 billion.
“Apart from the rapid rise in overall data center M&A activity over the ten-year period, the most notable feature has been the extent to which private equity has flooded into the market. In 2020, private equity accounted for 54% of the value of closed deals, rising to 65% in 2021, and since then it has remained in the 85-90% range,” Synergy wrote at the time.
Though there have been concerns that the data center boom could bust, Raval said that “as long as there’s disciplined capital in the space” things will be fine.
However, he warned “it’s the cowboys that are willing to do unwise things that could be detrimental to this business.”
What does that mean? Well, according to Raval, detrimental activity could mean cutting corners to speed data center construction to generate larger return faster. It could also mean “throwing up buildings without any understanding of demand dynamics.”
Private investors aren’t the only ones pouring cash into data centers. But Synergy’s Chief Analyst John Dinsdale told Fierce that trying to compare investments from a colocation company like Equinix to what private equity and hyperscalers are doing is like “comparing apples, oranges and bananas.” That’s because when hyperscalers build data centers, they’re also buying all the IT equipment inside, whereas a company like Equinix builds the shell and non-IT hardware and lets clients fill in the compute gear. And private equity just wants a stake in the venture.
As to whether cowboy investors could cut corners, Dinsdale said it’s possible but there are also plenty of educated investors out there.
“You are going to see a wide range of scenarios,” he concluded. “Some of these investors are super-smart, partner with good-quality data center operators, and they'll do just fine. Some others are a bit more speculative in nature, and some of those may not deliver good results.”