FOCUS LONDON
Issue 18, October/November
LONDON MARKETS AND THE DATA CENTER
Markets have retained confi dence in the data center space, where bigger is better for high-net-worth individuals such as premiership footballers and large institutional investors, writes Ambrose McNevin
B
arclays Corporate has been active in the data center space recently. It was one of the joint bookrunners, alongside Credit Suisse, Deutsche
Bank and HSBC for the Global Switch bond, an investment-grade offering made in April.
John Corcoran, executive chairman of Global Switch, says: “We were delighted with the strong investor interest shown in Global Switch, with the issue being substantially over-subscribed, giving a clear endorsement of our business model and financial standing.”
Sam Kemp, relationship director, TMT, Barclays Corporate in London says: “The capital markets retain confidence in the data center sector. For high-net-worth individuals such as Premier League footballers it is seen an interesting remunerative opportunity, ultimately backed by assets. There is an appetite for data center investments. Investors are looking for low risk and high yield. Data centers are quite high up the capital structure.”
Existing facilities seeking second-round funding are more attractive to both the high-net-worths and the larger investors. This is because of the amount of activity in the market.
Why put money into a greenfield site when there is a building around the corner looking to expand.
DATA CENTERS AS AN ASSET CLASS? George O’Connor, analyst with Panmure Gordon
Is interest in the sector growing, falling or has it plateaued for 2011/12? The level of interest in the UK data center sector remains high and is growing. This is despite the fact that there has been a splurge of investment in building out facilities. At the moment, however, debt markets are fairly tight. This means less available funds which means fewer observable deals.
Is there anything in particular driving interest in this market? The functional core demand-side drivers (cloud, distributed computing and security) are well understood and remain the key drivers. We think that with greater public sector interest in shared services and the public/private
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www.datacenterdynamics.com London: Where investors are sizing up healthy data center investments
Where is the lowest risk with the highest return, and that is ready to go? This is what motivates investors. Most investors are coming in as a yield play. Ultimately, the only question is: When do your investors get their money back?
In terms of understanding the data center market, Kemp says that a couple of years ago there was a great deal of educating to be done.
Today he doesn’t believe investors need to get so granular to understanding the different types of facility in development. Institutional investors are only concerned with whether the client is happy and its needs are being met.
sector partnerships (the John Lewis model), there could well be new interest from public sector users. The supply of power remains an interesting wild card.
Where is the money going? Into buildings? Networks? The easy answer is both or, rather, you cannot have one without the other. As we look at the corporate market we still see data network upgrades driving the shift from 1GbE to 10- 100GbE networks. There has been some fall off in areas such as high-frequency trading from some of the larger investment banks and capital markets companies, which may lead to a short- term supply imbalance.
Do institutional investors really understand the sector — the diff erent types of data center and diff erent types of data center player? Fair point. There has been a gradual increase in
Equity, high net worth and, ultimately, the bond market: the interesting point is the bond.
BOND MARKET AND IPO
The Global Switch bond issue got investment- grade status. With Global Switch, a lot of effort went into educating investors. A €500m bond issue became €600m because of market interest. The high-yield bond was hugely oversubscribed, even though it was priced quite competitively.
Kemp says: “Interxion’s IPO was successful. A US IPO of a Dutch company with most of its business in the UK. An interesting story. Value has held up.”
awareness as to what the various types of data center companies do. However, there is
still
much to learn about how the operational models impact the economics of the participants. For example, let’s consider hosting companies.
While there is an assumption that these are similar, that is not the case as there will be very large diff erences in the underlying economics between those companies that own their own sites and those that lease them. In addition, there is a whole panoply of service off erings that operators can, or chose not to, off er.
Market performance: Who are the best performers in the UK?
If we look at the listed UK companies, we can see that Iomart has outperformed the FTSE All Share by 53.7% in the past 12 months. Telecity outperformed by 9.3%, Phoenix IT by 11.2% and CSF underperformed by 4%.
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