Reckoning with the Flood of AI and Data Center M&A and Investment Outcomes
For close industry watchers, new data from Synergy Research Group (Reno, Nevada) this summer confirmed that after a relative lull in 2023, data center-oriented M&A [merger and acquisition] deals are on the rise again this year, and are in fact once again poised to pass $40 billion milestone.
Synergy's analysis reminds us that the four $10 billion-plus deals that closed in 2021 and 2022 were the acquisitions of CyrusOne, Switch, CoreSite and QTS. The analyst notes all four acquired companies feature in the worldwide top 15 ranking of colocation operators, while they are ranked in the top seven in the US market. Synergy said its total topline numbers show that 2021 and 2022 were the peak in terms of the aggregate value of all deals formally closed.
In both years the total value of deals closed was around $50 billion. In 2023 there was then a drop off with total value falling by 47% to $26 billion. However, Synergy noted those 2021 and 2022 numbers were boosted by the four biggest deals ever seen in the industry as aforementioned, each valued at $10 billion or more.
Synergy Research further posited that if mega-deals of $2 billion or more are separated out, then the trend in the flow of what might be termed “regular deals” shows a different pattern: 2021 was still the peak, 2022 dropped off by 30%, 2023 dropped again but only by 9%, and 2024 is now poised to potentially surpass the 2021 record.
Meanwhile, the biggest deals to close so far in 2024 at the time of Synergy's reporting were this year's equity investments in Vantage Data Centers and EdgeConneX. The researcher said at that time that total deals closed so far in 2024 are valued at $36.7 billion, with another $7.1 billion agreed but not yet formally closed.
Synergy said it is also aware of a pipeline of well over $20 billion in possible future deals, where companies are seeking sales or considering strategic options. "When some or all of those pending deals close, and taking into account the flow of deals which happen without prior notice and the conversion of some of the pipeline, the final 2024 M&A figure could well match the high seen in 2021," wrote the analyst.
Since 2015, Synergy Research notes has logged a total of 1,381 data center-oriented M&A deals, with an aggregate value of $276 billion. While most of this figure reflects company acquisitions, the researcher emphasizes the numbers also include a significant helping of minority equity investments, investments in joint ventures, acquisitions of individual data centers, share sales and acquisition of land for data center development.
In explaining the industry's current momentum toward M&A, John Dinsdale, Chief Analyst at Synergy Research Group, noted:
“There has been an inexorable rise in the demand for data center capacity, driven by cloud services, social networking and a range of both consumer and enterprise digital services. The rise of generative AI is adding a further boost to demand. Specialist data center operators have either not been able to fund those investments themselves, or they were not prepared to put their balance sheets at risk.
Meanwhile, data centers are very much being viewed as long-term safe havens for investments, even during turbulent times, which has caused a huge influx in private equity. We do not anticipate that picture changing any time soon."
The Flood of Private Equity Toward Data Centers Meets Hyperscaler Investment
Indeed, in addendum to its August 2024 analysis, Synergy Research noted how "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."
The doings of global investment leviathan Blackstone exemplify both the M&A and investment sides of the data center AI gold rush equation as mapped out by Synergy Research.
When DCF reported last month on Blackstone's $16 billion acquisition of AirTrunk in APAC, it seemed like one of the year's consummate data center industry stories -- at least for that week. To wit, following quickly on AirTrunk's heels, Blackstone in September confirmed its $13 billion investment in Britain and the UK for AI data center development and construction. That announcement can now be seen as prelude to news this week that US tech firms led by ServiceNow and Coreweave would also invest $8.2 billion in UK data centers to fuel AI growth.
But back to Blackstone, this week, the firm announced it would invest $8.2 billion in data centers in northeastern Spain's Aragon region, to be operated by its data center arm QTS. That's big news, but no big surprise, as Spain is currently rolling in hyperscaler data center investment. For instance, in May, AWS announced it would invest upwards of $17 billion in data centers in the same region in Spain. And this June, Microsoft announced the opening of its first cloud region in Madrid, Spain to accelerate the development of the AI economy
Today on the company's Q3 2024 earnings call, Blackstone Chairman and Chief Executive Officer Stephen Allen Schwarzman affirmed his company's catbird seat in the industry:
"The Blackstone portfolio consists of $70 billion of data centers and over $100 billion in prospective pipeline development, including AirTrunk and facilities under construction. We've conceptualized this new business area, built conviction, and in only three years, scaled it to the largest platform in the world."
Interestingly, Schwarzman added, "And there is much more we're doing, and planned to do in this area, including addressing the sector's growing power needs, which we believe will create enormous additional opportunities for investment over time."
Blue Owl Capital Acquires IPI Partners, Targets Data Centers, Digital Infrastructure
The Oct. 7 announcement that Blue Owl Capital (NYSE: OWL) would acquire the business of digital infrastructure fund manager IPI Partners, LLC from an affiliate of ICONIQ Capital and an affiliate of Iron Point Partners for a purchase price of approximately $1.0 billion certainly registered as emblematic of Synergy's latest data center segment M&A and investment analysis.
Acquisition of digital infrastructure fund manager IPI will add approximately $10.5 billion to Blue Owl's assets under management and further augment that firm's existing digital infrastructure strategy.
Blue Owl’s Co-CEOs Doug Ostrover and Marc Lipschultz explained the move thusly:
“The acquisition of IPI with its deep sector expertise complements our existing net lease strategy while providing an ideal opportunity to expand Blue Owl’s digital infrastructure strategy. There is a massive market opportunity to finance data centers, matched by an increasing investor appetite for additional strategies investing behind cloud and AI-driven secular tailwinds.
IPI’s tenured investment team, preeminent LP-base and global scale in the digital infrastructure economy will enhance our suite of capital solutions and investment offerings, further strengthening our position as a partner of choice. Investors can benefit greatly from the combination of Blue Owl’s triple net lease knowledge and IPI’s depth in the data centers market.”
As explained in a press release, the deal's purchase price will be comprised of approximately 80 percent Blue Owl equity and approximately 20 percent cash. The acquisition is expected to close in the fourth quarter of 2024 or first quarter of 2025, subject to certain closing conditions including third party consents, and is expected to be neutral to Blue Owl’s earnings in 2025 and modestly accretive in 2026. Blue Owl said it will partner with an affiliate of ICONIQ to help accelerate the future growth of the business.
IPI has approximately $10.5 billion in assets under management as of June 30, 2024 and was founded in 2016 as a joint venture between ICONIQ and Iron Point to service the needs of large, high-quality hyperscale and enterprise datacenter users. The IPI platform has grown into one of the largest private US-based data center investors with a portfolio of 82 data centers comprising over 2.2GWs of leased capacity across the US, EMEA and APAC.
Upon closing of the acquisition, IPI’s business will further enhance Blue Owl’s digital infrastructure strategy as part of the firm’s Real Estate platform, which will continue to be led by Blue Owl Co-President Marc Zahr. IPI’s Managing Partner, Matt A’Hearn, will become Head of Blue Owl’s digital infrastructure strategy and report to Blue Owl Co-President Marc Zahr.
IPI's A’Hearn remarked:
“On behalf of the IPI team, we are incredibly excited to join Blue Owl and serve as the foundation for expanding the firm’s digital infrastructure strategy, further complementing their market-leading net lease strategy. We are also grateful to our partners at ICONIQ and Iron Point, who were instrumental in helping us become one of the most scaled digital infrastructure managers. We believe there’s a tremendous amount that IPI can accomplish within the Blue Owl ecosystem alongside our partners at ICONIQ, and look to extend our market leading position.”
IPI's tenants are primarily investment grade corporations, including several Fortune 100 companies. The firm is based in Chicago, IL with over 70 team members in global offices and over 50 investment professionals. IPI’s employees are expected to join Blue Owl and will continue to manage IPI’s existing funds.
As an additional feature of the deal, an affiliate of ICONIQ will enter into an agreement with Blue Owl to provide services to Blue Owl’s business, including, but not limited to, investment analysis and investor relations. In exchange for these services, an affiliate of ICONIQ is eligible for services payments, that are subject to certain future targets. Blue Owl anticipates these payments will be made between 2026 and 2028.
Divesh Makan, a Founding Partner at ICONIQ, noted:
“It has been a privilege to help build IPI over the past eight years and to secure trust with many of the largest data center customers in the world. During this time, IPI has grown into one of the largest private developers and investors of data centers globally by solving problems for the leading global technology companies. We are excited to deepen our existing partnership with Blue Owl to advance IPI’s market leadership and further execute on this generational opportunity.”
Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, Societe Generale, and TD Securities (USA) LLC are acting as co-financial advisors to Blue Owl in connection with the acquisition. Kirkland & Ellis LLP is acting as legal advisor to Blue Owl. Gibson, Dunn & Crutcher LLP is acting as legal advisor to IPI. Berkshire Global Advisors L.P. is serving as financial advisor to Iron Point.
Tom Lynch, a Managing Partner at Iron Point, concluded, “We are proud to have been partners with ICONIQ in the formation and growth of IPI, and we are confident that the addition of Blue Owl will enable IPI to achieve even greater scale to meet the needs of the world’s largest technology companies.”
The Breakneck Pace of AI Data Center Investment, Development Symbiosis
Just a week later on Oct. 15, it was announced that Blue Owl Capital has entered a $3.4 billion joint venture for AI data center development with Crusoe Energy Systems LLC and Primary Digital Infrastructure, an advisory and investor firm focused in the data center industry.
The deal specified a build-to-suit 200+ MW of AI data center capacity to be developed by Crusoe, located at the Lancium Clean Campus site being developed in Abilene, Texas. Under the terms of the fully funded forward takeout, funds managed by Blue Owl’s Real Estate platform and Primary Digital Infrastructure will jointly sponsor the 206 MW 998,000 square foot data center being designed, built, and operated by Crusoe.
The Crusoe AI data center as planned calls for a build-to-suit, two-building data center constructed to industry leading efficiency and reliability standards, and capable of supporting high energy density IT applications. The project is 100% long-term leased to a Fortune 100 hyperscale tenant with occupancy expected to begin in 1H 2025.
Chase Lochmiller, CEO and co-founder of Crusoe, commented:
“Rapidly expanding demand for purpose-built data centers proves that markets know the future will be powered by AI. We've designed this data center to enable the largest clusters of GPUs in the world that will drive new breakthroughs in AI. An investment of this magnitude from a leading, trusted asset manager like Blue Owl and Primary Digital Infrastructure is a reflection of Crusoe’s proven ability to meet growing demand for AI compute, and to power these workloads sustainably.”
Supported by Blue Owl’s investment and developed by Crusoe, the project will incorporate an innovative data center design optimized to support cutting edge AI workloads at an industry-leading scale. The companies specified that the new data center's design will accomodate both direct-to-chip liquid cooling and air cooling.
At completion, the companies further project that the data center will be able to operate up to 100,000 GPUs on a single integrated network fabric, advancing the frontier of data center design and scale for AI training and inference workloads.
Marc Zahr, Co-President and global head of real estate at Blue Owl Capital, said:
“We are thrilled to be part of this joint venture as we see continued growth in cloud computing and increased investor interest in AI related technologies. We want to assist our corporate partners by deploying meaningful capital in support of high quality hyperscale data center assets across the US and abroad."
The 200+ MW capacity will be delivered by Crusoe in 2025 on what it forecasts to be a record-setting construction timeline, with such speed projected to be achieved through Crusoe’s innovative design strategies and intimate familiarity with the GPUs and other integral AI hardware that will outfit the site.
Bill Stein, Executive Managing Director and Chief Investment Officer for Primary Digital Infrastructure, and current Crusoe advisor, commented:
“There is an unprecedented opportunity to deploy capital in the data center market, which is expected to experience a one trillion dollar investment boom over the next four to five years in the U.S. alone. Our strategic vision is to ‘risk match’ this incremental capital by purchasing the best stabilized assets from developers and operators to allow them to recycle capital and finance their cloud and AI facility developments."
According to a press release, the notional power plan for the Texas site includes both on- and off-site renewable resources, including surrounding wind developments, and a potential future large-scale onsite solar installation. The partners said the goal is to optimize existing renewable power resources and incentivize new greenfield renewable power development. The availability of low-carbon energy factored heavily into site selection, as it is central to Crusoe’s climate-aligned mission and energy-first approach to powering AI infrastructure.
The project is expected to contribute nearly $1 billion to the local economy over the next 20 years, as estimated by the Development Corporation of Abilene, and will focus on local hiring, creating almost a hundred local jobs. Combined with its limited environmental impact due to the proposed use of renewable energy, this project reflects Crusoe’s commitment to lead the industry in sustainability and community stewardship, the company said. Newmark served as advisor to the partnership.
Primary Digital Infrastructure's Stein concluded:
“By partnering with Blue Owl and Crusoe, Primary Digital Infrastructure is leveraging its deep sector expertise to provide flexible capital solutions to the largest AI data center opportunities in the US. In this transaction, Primary Digital Infrastructure helped combine Blue Owl’s extensive capital access and transactional expertise with Crusoe’s ESG-forward track record as a developer and operator to quickly and efficiently create one of the nation’s most advanced data centers for energy dense AI workloads.”
Matt Vincent
A B2B technology journalist and editor with more than two decades of experience, Matt Vincent is Editor in Chief of Data Center Frontier.
