Vantage Data Centers is being acquired by a consortium of investors led by Digital Bridge Holdings, which sees the purchase as the first step in a larger expansion into the wholesale data center industry.
To finance the deal, Digital Bridge has partnered with Canada’s Public Sector Pension Investment Board (PSP Investments) and TIAA Investments. The seller was the private equity firm Silver Lake, which created Vantage in 2010.
The Vantage acquisition is the latest in a flurry of M&A deals that are gradually reshaping the competitive landscape in the data center sector, infusing the industry with billions of dollars in fresh capital. Investors, data center REITs and hyperscale operators are positioning themselves to benefit from the rapid growth of cloud computing.
Digital Bridge was formed in 2013 to invest in communications infrastructure, and has built its data center operations through a series of acquisitions. The deal for Vantage provides Digital Bridge with a major presence in Santa Clara, Calif., the leading data center hub for Silicon Valley, as well as a campus in the hyperscale haven of Quincy, Washington.
Vantage Management Team to Stay On
Perhaps most importantly, Digital Bridge adds the experience of the Vantage team, which has built a successful business in one of the nation’s most competitive markets. Vantage CEO Sureel Choksi and his management team will continue their duties, and have each made investments in the business alongside the consortium.
“Vantage is one of the highest quality businesses I have encountered in more than two decades of investing in the sector,” said Marc Ganzi, co-founder and CEO of Digital Bridge. “This is a unique and special opportunity to invest in a company that has operational excellence, quality customers, and a current lease portfolio with long duration. It also has significant expansion capacity in Silicon Valley, perhaps the best data center market in the U.S.”
Terms of the transaction were not disclosed. A Reuters report suggested Digital Bridge would be the buyer in a deal that would value Vantage for more than $1 billion.
Room to Grow in Silicon Valley
Vantage Data Centers was founded in 2010, when it began redeveloping an Intel data center property with backing from Silver Lake. That Santa Clara campus now features four finished data centers, with two more under construction. Vantage has acquired land for a major new campus in Santa Clara, and also operates a fully-leased data center in Quincy.
Digital Bridge continues an acquisition-driven data center strategy that began with last year’s purchase of Dallas-based DataBank, which will be Digital Bridge’s vehicle for expansion in the retail colocation business. DataBank has also bought C7 Data Centers of Salt Lake City, and facilities in Pittsburgh and Cleveland from 365 Data Centers.
“Think of Vantage as a platform to expand into new markets,” said Choksi. “We have three large investors who are excited about the notion of expanding this platform. We’re super excited about leading this expansion, not only in Santa Clara but also an expansion on a broad geographic basis.”
“We began to look at the wholesale data center space last summer,” said Ganzi, the CEO of Digital Bridge. “We really understood the (Vantage) vision, and were impressed with the uniqueness of the assets and the relationships they have built.”
Digital Bridge and its investors will begin in Santa Clara, one of largest and most important data center markets in the U.S., providing space to deploy new hardware and services from Silicon Valley’s marquee technology companies, as well as a legion of fast-moving startups.Sureel Choksi: We have 3 large investors who are excited about the notion of expanding this wholesale platform.Click To Tweet
Vantage will bring 24 megawatts of capacity to market with the two construction projects on its existing campus. The company has also lined up a 9-acre site on Mathew Street in Santa Clara for a major new cloud campus, which will be home to four data centers offering 69 megawatts of critical IT load.
“Mathew is going to arguably be the premier hyperscale data center in Santa Clara,” said Ganzi. “It addresses what we see as a very capacity-constrained market.”
Beyond Silicon Valley, Ganzi said Digital Bridge will take a disciplined approach to expansion, and is interested in markets like Northern Virginia. “You have to pick good locations that address a market need, and where there’s an imbalance between supply and demand,” said Ganzi.
“We are going to partner with our customers, and so our customers will lead us,” added Choksi. “We’re expect to be more focused on Tier 1 markets or Tier 2-plus markets.”
Bridging Wireless and Data Centers
A key difference between Digital Bridge and most other data center operators is the company’s extensive holdings in wireless infrastructure. In addition to DataBank, Digital Bridge owns more than 4,600 wireless towers through Vertical Bridge, and is building out wireless Distributed Network Systems in major cities through Extenet Systems. Digital Bridge also owns thousands of wireless towers across Mexico, Columbia and Peru, creating intriguing possibilities for future expansion beyond the U.S.
“The benefit of working with Digital Bridge is that they’ve focused exclusively on the ecosystem of digital communications,” said Choksi. “While each of their companies operate independently, and have different capital structures, it gives us a broader ecosystem of relationships.”
Digital Bridge also partners with a variety of investors. When it bought DataBank, it partnered with Teachers Insurance and Annuity Association of America, Allstate Investments, and The Edgewater Funds. For the Vantage deal, it teamed with PSP Investments and TIAA.
“We are confident that Vantage is ideally positioned to successfully deploy its winning expansion strategy, and look forward to supporting the company’s top tier management team,” said Daniel Garant, Executive Vice President and Chief Investment Officer at PSP Investments. “Vantage’s leading market position, in a sector which we believe will grow significantly in the coming years, makes it an attractive investment for PSP Investments.”
Mike Foust, Senior Advisor to Digital Bridge and former CEO of Digital Realty, will join the Vantage board of directors as Chairman, and Raul Martynek of Digital Bridge will also join the board.
The deal was also hailed by Vantage’s backers. “Silver Lake is proud to have supported Vantage’s vision and accomplishments since inception,” said Greg Mondre, Managing Partner at Silver Lake. “From a standing start seven years ago, the company has become a leading wholesale data center provider, with an established platform for long-term growth.”
Leading With Scale, Flexibility
Vantage began seeking an acquirer last fall, building on several years of strong leasing success. “We’ve built a business that now serves as a who’s who of cloud service providers,” said Choksi. “We’ve done it by being laser focused on the customer experience. In the past two years, 40 percent of our customers have expended with us. It’s the proof point around our customer experience.”
That was a key priority for Choksi, who joined the company in 2013, succeeding Jim Trout as CEO.
“It was clear to me that we had some phenomenal assets,” said Choksi. “In some cases, we didn’t have as much of a focus on operational processes and customer care. There was a shift to augment the existing team to really focus on bringing the best customer experience.”
Vantage has been a leading beneficiary of variable resiliency, a design trend featuring data halls with less elaborate backup power infrastructure than traditional data centers. The company has won multiple deals for lab-style environments, whose high-density compute loads aren’t usually mission critical.
“We spent a lot of time focused on differentiating on redundancy,” said Choksi. “We were one of the first providers to vary from the traditional production spec and offer a range of redundancies and densities. Our belief is that this is no longer a ‘one size fits all’ market. Where we see opportunity is giving customers flexibility and redundancy. We believe the wholesale data center is an industry where scale really matters.”
The Vantage team is positioned to scale even further as part of Digital Bridge, and Choksi is excited about the future.
“We’re fired up,” said Choksi. “It’s the best possible outcome. It’s been quite a process and a tremendous amount of work has gone into it. It’s really exciting to have this new opportunity, and to be able to keep the whole team together.
“It’s been a long journey, but a lot of fun,” Choksi added. “In a sense, the journey is still in its early days.”