Switch Acquires Data Foundry for $420 Million, Enters Texas Market

Switch is acquiring data center provider Data Foundry for $420 million, expanding into the Texas market. The deal provides Switch with its fifth “prime” data center region, which will include Data Foundry facilities in Austin and Houston. Switch says it intends to add additional capacity in both cities.

This is the first major acquisition for Switch, which builds large data centers and serves a roster of marquee clients in the cloud and enterprise sectors. The company a massive data center cluster in its home base of Las Vegas, and has since expanded into Reno, Atlanta, and Grand Rapids, Michigan.

The Data Foundry deal provides an instant entry to the strategically important Texas market, including three data centers in Austin, which is seeing an influx of technology firms relocating from the West Coast. The acquisition also adds more than 400 customers, with limited overlap with Switch’s existing customer base. Switch will now have 16 data centers across six locations.

“The Data Foundry acquisition extends Switch’s national reach and enhances our ability to serve Texas and the Central U.S. region with low latency connectivity, while also providing critical geographic and revenue diversification,” said Switch Founder and CEO Rob Roy.

‘Really High-Quality Assets’

Switch operates one of the largest cloud campuses in the world at its Las Vegas CORE Campus, where Roy introduced pioneering concepts in high-density cooling and aisle containment, as well as custom multi-mode cooling systems. The company has added three more purpose-built campuses – the Citadel Campus in Reno, the Pyramid Campus in Grand Rapids, Michigan, and the Keep Campus in Atlanta.

Switch executives said a key factor in the acquisition was the two companies’ shared focus on engineering and building high-quality data centers.

“These data centers are really, really high-quality assets,” said Thomas Morton, President of Switch. “They’re very high-design, and there will be no need for us to retrofit (to have consistent standards).”

“We didn’t do this because of a need, we did this because of an opportunity,” said Gabe Nacht, the Chief Financial Officer for Switch.

Data Foundry is a colocation and managed services provider that began operations in 1994 as Texas.net. The company’s portfolio includes includes operations in Austin and Houston.

• The three data centers in Austin have 10 megawatts (MWs) of existing capacity, with the ability to add an additional 4 MW in existing facilities. Data Foundry also has a 21-acre property where Switch plans to build a 30-megawatt data center, providing a total capacity of 44 MWs in Austin.
• The Houston Data Foundry campus has one data center with up to 4.5 MWs of installed power, and the ability expand to 6 MWs. Switch plans to build a 12 megawatt data center on an adjacent 10-acre piece of land.

“Data Foundry is proud to partner with Rob Roy and the Switch team in this transaction that we believe will carry forward our company’s rich history of innovation in Texas, and will result in tremendous long-term benefits to our customers and all stakeholders of the combined business,” said Carolyn and Ron Yokubaitis, co-founders of Data Foundry.

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“Both companies share a set of core values that emphasize technology leadership, operational excellence, community involvement, and a relentless focus on customer service,” said Jonah Yokubaitis, also a co-founder of Data Foundry.

Competitive Sale Process for Data Foundry

The quality of Data Foundry’s assets led to an active bidding process organized by DH Capital, which featured more than 10 bidders. Many of the world’s largest investors are seeking to invest in digital infrastructure, citing extraordinary demand for capital to fuel the data economy.

“This is a unique asset and it was highly sought after,” said Morton, who said the Data Foundry team found a receptive market. “They were looking at an inflection point where they would have to raise money (to add capacity) and they decided to take advantage of the current market and the healthy multiples and take an exit from the market.”

The all-cash acquisition priced of $420 million represents approximately 19x estimated 2021 Adjusted EBITDA got Data Foundry, and will be funded with a combination of cash on hand, borrowings under Switch’s $500 million revolving credit facility, or new debt. Switch expects to realize $2 million of “cost synergies” through integrating the two companies.