DataBank looking to build on success with further data center acquisitions
DataBank: centers of excellence
The last couple of years in the data center industry have been characterized by a high level of mergers and acquisition (M&A) activity, with a record 2016 set to be comfortably surpassed in 2017, with the value of deals expected to run into multi-billion-dollar territory.
One of the companies that has been particularly busy is DataBank, which was itself the subject of a takeover from Digital Bridge in June 2016. Headquartered in the historic former Federal Reserve Bank Building in downtown Dallas, TX the company is a leading provider of enterprise-class data center, cloud, and interconnection services, offering customers 100% uptime availability of data, applications, and infrastructure.
DataBank's managed data center services are anchored in world-class facilities, and after a recent flurry of activity the company currently boasts 13 data centers located across Dallas, Minneapolis, Kansas City, Cleveland, Pittsburgh, Salt Lake City, and Atlanta, operating within or managing major network interconnect facilities within each of the regions.
This footprint of top-tier facilities is dedicated to providing uninterrupted access to customer data, applications and IT equipment. DataBank’s services provide business solutions for corporate enterprises, including hybrid cloud services, customised IT deployments, and industry compliant regulations to meet the outsourcing needs for IT management, maintenance and operations. The company serves a wide range of customer verticals including media and content distribution, cloud infrastructure providers and telecom networks.
The business has consistently made headlines in recent years – both before and since the Digital Bridge takeover – as a result of a number of eye-catching deals to buy or build facilities in some of the United States’ fastest emerging data center hotspots.
In the last 12 months, DataBank has announced: the development of a purpose-built 94,000 sqft data in partnership with Georgia Tech; the construction of a third data center in Dallas; the acquisition of C7 Data Centers, the primary interconnection hub and largest data center service provider in Salt Lake City; the construction of a third 15,000 sqft data hall at its Minneapolis-area data center; and the acquisition of carrier-rich downtown data centers in Cleveland and Pittsburgh from 365 Data Centers.
Its most recent activity, announced on September 21, saw DataBank acquire Edge Hosting. DataBank said the acquisition will provide both market expansion and additional expertise in the delivery of cloud solutions and managed services, especially for clientele requiring comprehensive operational controls for a number of commercial and government compliance standards.
Raul Martynek is key to the story, having acted as a Senior Advisor to Digital Bridge before taking over as CEO at DataBank when the acquisition completed. Speaking exclusively to Supply Chain Digital, he reveals: “The majority of the work I did for Digital Bridge was around the DataBank acquisition, so it was obviously something that I felt very strongly about and thought would be very positive for the business.
“Now that I've transitioned to CEO of the company, I feel the best component of the Digital Bridge relationship is that it is a group with very, very well-established access to long-term capital. To be successful in the data center space you really have to have a long-term plan and access to funds. The investments we are making in building new data centers are not something that you get an immediate return on.
“We are in the process of building two new data centers, one a 145,000 sqft with over nine-megawatts available in Dallas, which is nearing completion, and we've also started on a 94,000 eight-megawatt facility in Atlanta. Those types of investments would not be possible with any kind of traditional private equity type of vehicle, where people are looking to get in and out of investments in a five to 10-year period.
“That's really been, to me, the most exciting part. Having run private-equity backed businesses in the past, and now contrasting that with our situation here at DataBank with Digital Bridge. We can have a long-term viewpoint on the marketplace. It allows us to make different types of investments, which we believe will return very favourably to shareholders in the future.”
Key to the appeal of the purchase for Digital Bridge was DataBank’s continuing ambition to grow into under-served markets, where there is huge potential for expansion, says Kevin Ooley, President and CFO of DataBank, who has been with the business since 2011.
“From 2011 to 2016, the plan was to capitalize on the Dallas presence, grow into underserved markets, and then add a layer of services on top that we knew our clients wanted. And we did that. We invested in Minneapolis and in Kansas City and built a second facility in Dallas,” he comments.
“When Digital Bridge came on board, they liked that strategy, they agreed with it. It was a natural transition that the larger ownership group and dollars behind it allowed us to continue with that plan, but on a much-accelerated schedule, and really take it beyond the Central time zone. So, we still focus on underserved markets and, using a football analogy, American football, underserved NFL cities: Chicago, New York, Northern Virginia, Silicon Valley are very well served, with a great deal of competition. So, we're going after that Salt Lake City, Pittsburgh, Cleveland, Atlanta, that secondary market that has served us very well.”
Martynek is on the same page: “What we see is that as the internet continues to evolve, that there needs to be infrastructure in secondary markets; this trend that's called the ‘edge’ – our view is the edge is alive and well today. It exists in places like Pittsburgh and Cleveland and Salt Lake City and Minneapolis and Kansas City. If you look at DataBank's evolution that's exactly what we've done. We started in a tier-one market, which is Dallas, and it's still a very important market for us, but all our expansions since then have been into these other markets where we see demand evolving as the internet of everything becomes more important.”
The recent announcement that DataBank has partnered Georgia Tech to develop a new 94,000 sqft data center in downtown Atlanta, housing high-performance computing nodes and unique datasets for university research, has certainly piqued the interest of the data center world. Located in Midtown Atlanta, DataBank's ATL1 data center will serve as a HPCC (High-Performance Computing Center) and will house the Southern Crossroads providing high speed, high bandwidth connectivity to research and education sites throughout the southeast and across the nation. Construction of DataBank's ATL1 data center is scheduled for Q4 of this year, with construction slated for Q4 2018 completion.
Martynek says that the opportunity to work with academia and parachute the DataBank into a new business space was too good to turn up.
“This is a very high-profile project, a very major investment, and all indications are that it's going to be very successful because it’s starting with an incredible foundation, which is Georgia Tech.”
“We saw an opportunity to insert ourselves into an ecosystem that we hadn't been in before. We're very well established in the corporate enterprise ecosystem, we're very well established in the carrier network ecosystem, and we're very well established in what we call SMACC, which is social, media, analytics, content and cloud, so the internet ecosystem.
“This project represents a fourth ecosystem, that we really didn't have any exposure to. We felt that given the profile of Georgia Tech, it would be just a tremendous way to get into that ecosystem. We’re hugely excited about it and the conversations we’ve had with Georgia Tech have been extremely positive.”
The project is also one close to Ooley’s heart, not just because of the potential it represents for DataBank, but also due to the time he spent as an undergraduate student at the University. “I’ve experienced the emphasis and resources that they put into research. It's one of the highest rated engineering institutes in the US, and the commitment to this area and the broader Atlanta community is unparalleled. I'm really pleased to be a part of that, and we will benefit because a lot of our customers will see us providing this for them and we'll gain credibility to be able to take this and offer it in other markets,” he comments.
Away from academia, DataBank has entered the Cleveland and Pittsburgh after its acquisition of network-neutral data center facilities from 365 Data Centers. “Cleveland and Pittsburgh offer very highly connected facilities, so it was a positive way for us to enter into the marketplace,” says Ooley. “This opportunity aligned with one of our two acquisitions strategies, which is to go into a market and pick up an asset and then build our data bank design, data centers around that.”
Elaborating on strategy employed by DataBank, Martynek reveals: “We look at markets analytically – not every market is going to be a good one. Cleveland, Pittsburgh and our Atlanta announcement, all three of those markets were on our radar as good markets that had good characteristics from a long-term absorption of incremental data center space.
“We're reticent to go into a market without an established presence, in other words greenfield. That's a really big difference between what's happening now and what happened in the bubble era.
“I've been in the sector since 1994, so I've seen the evolution. In the bubble era, companies planted flags, they would set up operations in a location without a single customer. That doesn't happen today in data center land. People realize it's very difficult to convince users, sophisticated enterprise users, in a given market, to give them business just by coming up and saying ‘Hi, I'm the new guy on the block. I'm going to do a good job for you.’
“You have no track record, and this is a business of trust. The enterprise person is going to be loathed to trust you over someone who's been in the market for three years, five years, ten years, and has that track record. That's why we look to seek out acquisitions as our market entry method, after we've underwritten the viability and attractiveness of a given market. That's exactly what we did with 365’s assets.”
Amongst the myriad of challenges of operating a clutch of data centers across the United States is one of sustainability. Data centers are by their nature power hungry beasts that demand round-the-clock attention. To that end, DataBank measures the energy output of its centers on a PUE (percentage utilisation effectiveness) basis.
“It's a pretty simple concept, which is how much power is the entire data center using? That's what's on the numerator. The denominator is how much power are our customers consuming?” says Martynek.
“The closer you can get that number to one, the more efficient you are, because I can't change the power usage of my customer's equipment, that's his decision, but I can ensure that my facility operates as efficiently as possible. We've been doing a lot there to ensure that we get to a very low number. Our facilities in Utah are at like 1.2, 1.3, which is very, very strong. We're only using 200 to 300 KW per megawatt to run the entire facility. That's how we measure sustainability.
“The market's starting to evolve where we're able to purchase power from more sustainable long-term renewable type of sources. I think you see, across the industry, big commitments, not only from the large customers, like the Apples and the Googles and the Amazons of the world, but even our larger data center competitors are demanding that type of option. I think those are going to trickle down to us, because we're still a small consumer compared to them. I think we're going to benefit from their activity.”
It is also likely that DataBank will continue to benefit from the consolidation that is evidently taking place in the data center industry, with Martynek of the opinion that the sector is very fragmented compared to industries such as wireless, telco or cable. “When you look at this space it’s ten years behind where those other sectors are,” he says.
So, plenty of potential for further acquistional activity.
In addition, Marytnek believes the service offering Databank is bringing to market sets it apart from some of the competition. “We've adopted what is called the hybrid approach. What that means is we offer not just co-location solutions, but we offer managed service and network solutions, on a single platform in the same building. That's not something that a lot of people do.
“It's much harder to do that, because obviously, your expertise has to expand into a wider set of products and services. Ultimately, we see that as the winning formula in that enterprise market. We see our enterprise customers that are one megawatt and below asking us to do more for them around managed services, around network. That is a huge source of differentiation for us.”
He concludes: “Our plan over the next 12 - 18 months is to continue to dig deeper in our existing marketing. That's our function of what I described earlier in terms of bringing on new inventory, new capability.
“With DigitalBridge we have a very active M&A programme. We're constantly looking at new opportunities. I do envision us continuing to expand geographically through incremental acquisitions into attractive secondary markets that fit our strategy.”