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You are here: Home / Featured / Digital Realty Acquires Teraco as Africa Data Center M&A Continues

Digital Realty Acquires Teraco as Africa Data Center M&A Continues

By Rich Miller - January 3, 2022

Digital Realty Acquires Teraco as Africa Data Center M&A Continues

The exterior of CT2, the new Teraco Data Environments data center om Brackenfell, Cape Town in South Africa. (Photo: Digital Realty)

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As the world’s largest data center operators race to buy and build capacity in Africa, Digital Realty has made the biggest acquisition yet, buying control of Teraco Data Environments in a deal that values the South Africa-based developer at $3.5 billion.

The move comes less than a month after Equinix announced plans to acquire MainOne, a leading West African data center and connectivity provider, while Vantage Data Centers is building a major campus in Johannesburg. The Teraco acquisition is a clear indication that the data center industry’s leading players see Africa as an important strategic market, and are willing to move quickly to secure a competitive position.

“This highly strategic transaction immediately cements Digital Realty as the leading colocation and interconnection provider in Africa, a region experiencing rapid digital transformation,” said Digital Realty CEO William Stein. “Teraco is the industry leader in South Africa and the continent’s connectivity hub. This investment will enhance our ability to serve customers on a global basis by adding significant regional scale with a premier, network-dense portfolio in South Africa’s most strategically important metros. Teraco will also advance our strategy of increasing exposure to highly connected, network- and carrier-dense facilities to enhance our global coverage and connectivity capabilities.”

The transaction is expected to close in the first half of 2022. Upon closing, Digital Realty will own approximately 55% of the total equity interests in Teraco, while the remaining 45% will be held by a consortium of existing investors, including management, Berkshire Partners LLC, Permira, van Rooyen Group, Columbia Capital, Stepstone Ventures and the Teraco Connect Trust.

Seven Data Centers in Three Markets

Teraco is Africa’s largest data center services provider, with seven data centers supporting 75 megawatts across Johannesburg, Cape Town and Durban. Teraco serves over 600 customers, including more than 275 connectivity providers, over 25 cloud and content platforms and approximately 300 enterprises.  Teraco supports 22,000 interconnections between customers, and its Isando campus in Johannesburg is one of the most densely interconnected sites in the world, with over 13,000 cross-connects.

The company was founded in 2008 in Johannesburg, and also hosts seven on-ramps to leading global cloud service providers in Johannesburg and Cape Town and currently provides direct access to seven subsea cables in Durban on the east coast and Cape Town on the southwest coast.

Digital Realty sees Teraco’s subsea assets as a key prize, as it already operates strategic Mediterranean interconnection hubs in Marseille and Athens that can serve as gateways to the African market. In addition, several consortiums of leading cloud and content platforms are currently building three additional subsea cables which are expected to land over the next three years.

“The significant investment in these proprietary networks underscores the tremendous expected future growth of digital infrastructure in Africa, and the leadership transition from telco-led consortia to content-controlled partnerships is expected to transform internet connectivity across the continent,” Digital Realty said in announcing the Teraco deal. “These new and existing cable systems encircle Africa, offering low-latency access from the east and west coasts of Africa to Europe and Asia.”

Africa M&A and the Competitive Landscape

The rapid escalation of data center construction and M&A in Africa reflects the intense competitive landscape for the world’s largest digital infrastructure companies. Vantage’s project was the first direct expansion into Africa by a major U.S. data center developer, and was quickly followed by acquisitions by Equinix and Digital Realty. The flurry of deals recalls the rapid-fire acquisitions in the Quebec market in 2018-2019, in which U.S.-based providers Vantage, Compass and Cologix established beachheads through M&A.

In both cases, the M&A tracked growing interest in the region from cloud platforms. Oracle recently announced plans to deploy a new cloud region in Johannesburg, where Microsoft has operated a cloud region since 2019. Meanwhile, Google is building laying the groundwork for future data center campuses in Africa by building the Equiano subsea cable.

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The expansion push by U.S-based data center platforms has turned out to be good news for the private equity owners of Teraco, who acquired the company just three years ago.

“Teraco has delivered exceptional growth during these first few years of our investment, leveraging its interconnected ecosystems, ongoing investments in expansion capacity, and track record of stellar execution to strengthen its leadership position in the fast-growing Sub-Saharan African data center market,” said Drew Walker, a Principal at Berkshire Partners. “As investors in digital infrastructure businesses for nearly a quarter of a century, we’re thrilled to continue our partnership with Teraco alongside Digital Realty, who will bring significant expertise and resources to the Teraco platform.”

Current Teraco Management to Continue

The Teraco management team will remain in place and will maintain day-to-day responsibility for operations in South Africa. The Teraco management team is led by Chief Executive Officer Jan Hnizdo, a longtime team member who has helped drive Teraco’s significant growth over the last decade.

“We are excited to enter our next chapter by joining forces with Digital Realty to create a truly global, scaled platform serving our customers in Africa and beyond, said Hnizdo. “Our combined platform will be uniquely positioned to serve the full customer spectrum with the ability to support their growth around the world. We look forward to working with the Digital Realty team to extend our state-of-the-art data center and connectivity solutions to capitalize on the favorable industry trends and tremendous market opportunity.”

Teraco has historically generated healthy double-digit growth in key financial metrics, including revenue, EBITDA and participants on its platform, the companies said. Teraco has one development project totaling 19 megawatts currently under construction, and owns land adjacent to its Johannesburg and Cape Town campuses that will support the development of up to 93 megawatts of additional capacity.

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I write about the places where the Internet lives, telling the story of data centers and the people who build them. I founded Data Center Knowledge, the data center industry's leading news site. Now I'm exploring the future of cloud computing at Data Center Frontier.

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