TierPoint Keeps Building With its Deal-Driven Growth Strategy

A row of cabinets inside one of the data halls at the TierPoint TekPark data center near Allentown, Pa. (Photo: Rich Miller)

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BREINIGSVILLE, Pa. – On a cold, gray Eastern Pennsylvania morning, the rolling hills and farmhouses outside Allentown are reminiscent of a landscape from an Andrew Wyeth painting. It’s not where you might expect to find one of the fastest-growing data center companies.

The Tierpoint TekPark data center is perched atop a high hill. The view of the countryside from the front door is impressive, but as you step inside you enter a high-tech facility, filled with humming servers and storage arrays that house mission-critical data from hospitals and healthcare providers across the Northeast.

It’s a reminder that data is everywhere, creating a pressing need for data centers beyond the technology hubs in Silicon Valley and Northern Virginia.

That’s the core business proposition for TierPoint, which focuses on second-tier data center markets and has grown rapidly through a series of 11 acquisitions in just six years. On Wednesday Tierpoint announced the acquisition of Omaha-based CoSentry, adding nine data centers across the Midwest.

The Cosentry deal gives TierPoint a national network of 38 data centers in 24 markets. The company’s 6,000 customers include The Bill & Melinda Gates Foundation, the National Aquarium, Pacific Science Center, BayBank and the St Luke’s University Health Network and mobile healthcare specialist WellDoc.

Although its network includes facilities in major cities (including Dallas, Seattle and Chicago), TierPoint’s primary focus is smaller markets like Tulsa, Little Rock, Nashville or even the Lehigh Valley of Pennsylvania, where TekPark is located.

“We strive to deliver Tier 1 style resiliency in a second-tier market,” said Bob Hicks, a senior vice president at TierPoint and general manager of the company’s Pennsylvania data centers, including the TekPark site. “Tier 2 markets have the greatest growth potential.”

TierPoint’s Growth Story

TierPoint’s story is one of expansion through acquisition. The company is backed by Cequel III, a St. Louis investment fund with long expertise in the telecom and communications sector, including stakes in companies like Broadwing and Suddenlink. Cequel entered the data center business with its 2010 deal to acquire Colo4, a Dallas-based colocation provider. Since then, the company has been a serial acquirer. Here’s a look at its growth:

2011: Acquired Perimeter Technology, which operates data centers in Oklahoma City and Tulsa.
2012: Bought Tierpoint, a provider based in Spokane, Washington.
2012: Added AdHost, a hosting frim based at Fisher Plaza in Seattle.
2013: Bought the Baltimore Technology Park.
2014: Acquired the Philadelphia Technology Park
2014: Bought Xand, a regional colo provider with six sites across the Northeast (including TekPark).
2015: Expanded into Jacksonville, Fla with a deal for CxP Datacenters.
2015: Acquired Windstream Hosted Solutions, the telco’s managed hosting arm, with eight data centers up and down the Atlantic Coast, from Boston to Raleigh.
2015: Bought the AlteredScale colo business at 601 Polk in downtown Chicago.
2016: Adds CoSentry and its midwest data center portfolio, inclouding sites in Omaha, Kansas City, Milwaukee and Sioux Falls, South Dakota.

TierPoint has been the busiest buyer in a period of major consolidation for the data center industry. Much of this action is taking place in regional markets, where acquirers with deep pockets can buy successful local service providers who need capital to fund additional growth.

At Data Center Frontier, we’ve been closely tracking the growth in second-tier data center markets. As the Internet and cloud services penetrate every corner of the global economy, data must reach new populations, filling in the empty spaces in the data center map. Businesses’ reliance upon the Internet is growing, and many prefer to house their data and applications in close proximity to their offices.

Inside TekPark

The business drivers may shift from state to state. At TekPark, the busiest verticals are healthcare and financial services. The 250,000 square foot building was once a semiconductor fabrication plant for Agere Systems, a spinoff of Lucent and AT&T.

The plant closed in the mid-2000s, but in 2011 was leased by DBSi (Data Based Systems International), which retrofitted the facility for use as a data center. DBSi, which also had facilities in Bethlehem and Valley Forge, Pa., focused on colocation and disaster recovery services for the healthcare and financial services industries.

“In our world, there’s a very large amount of healthcare, including regional hospitals,” said Hicks. “With the advent of HIPAA, they all had challenges. Mature healthcare companies typically don’t outsource their IT; they outsource their infrastructure.”

Hicks, who started with DBSi as COO in 1995, has had a front-row seat for the ongoing industry consolidation. In July 2012, DBSi was acquired by Xand, a data center roll-up backed by private equity firm ABRY Partners. In December 2014, Xand was subsequently acquired by TierPoint. While the name on the front of the TekPark data center has changed several times, the mission has remained the same – focus on the local customer.

“A lot of us are Tier 2 market people,” said Hicks. “It’s more of a personal sale.”

The chiller room at the TierPoint data center at TekPark near Allentown, Pa. (Photo: Rich Miller)

Hicks has overseen the conversion of the Breinigsville site from a semiconductor fab, an increasingly common model for a data center retrofit. The building has enviable power infrastructure, with a 69kV power line supporting the site and 12.5 MW of power capacity available, backed by six 2 megawatt emergency backup generators.

The large, open area that once housed the fab floor can eventually house up to 100,000 square feet of raised floor space. The building features a mezzanine floor with a central spine, which serves to define the data halls on either side. The mezzanine houses power distribution equipment, allowing TierPoint to shorten the cable runs to the equipment on the floor below.
TierPoint has created three data halls thus far, totaling about 30,000 square feet of space.

More Acquisitions to Come?

There’s room for more data halls along the 400-foot length of the building. TierPoint also has more headroom for growth, and the current market offers plenty of opportunity, with an unusual volume of data center assets for sale.

The Cosentry deal may help position TierPoint for future expansion. Private equity firm TA Associates, which acquired Cosentry in 2011, will become a significant investor in TierPoint, joining existing investors RedBird Capital Partners, Cequel III, Ontario Teachers’ Pension Plan, the Stephens Group, JZ Advisers and Thompson Street Capital Partners. TA Associates is a large Boston-based private equity firm whose previous data center investments include AboveNet and EYP Mission Critical.

This 400-foot long hallway runs the length of the TierPoint facility in TekPark near Allentown, Pa. (Photo: Rich Miller)

“The addition of TA Associates to an already strong investor group brings additional financial firepower,” said said Jerry Kent, Chairman and CEO of TierPoint (and Cequel III). ““We’re extremely pleased that a leader like TA Associates, with a long and rich history of smart investments, has chosen to become a significant investor in TierPoint.”

The investor group expressed support for Kent’s vision and execution of TierPoint’s deal-driven growth. “Under Jerry’s leadership, the original TierPoint platform has been transformed through several key acquisitions and continued organic growth across its nationwide facilities base,” said Gerry Cardinale, Managing Partner and Founder of lead investor RedBird Capital Partners. “We are extremely pleased with the team’s execution of our build-up strategy over the last year, culminating with this most recent acquisition of Cosentry.”

An Evolving Services Platform

TierPoint’s growth isn’t just about geography. The Windstream Hosted Solutions deal added significant managed hosting and cloud computing capabilities, which can be integrated across the portfolio.

“TierPoint can offer our customers an even more robust portfolio of cloud and managed services than we currently have available,” said Brad Hokamp, Chief Executive Officer of Cosentry.

TierPoint's Bob Hicks: There's a whole world that can't be enabled for cloud.Click To Tweet

Hicks has seen that transition in the company’s Pennsylvania data centers. DBSi initially focused on backup and disaster recovery services, but over the years its clients began adding more production workloads. Now there’s a growing interest in managed services and cloud.

“Colocation will never go away,” said Hicks. “But last year probably 30 to 35 percent of the new business was managed services. Our cloud and managed services platform is really starting to come into its own. You need a good data center to run a good cloud.”

But for many second-tier data centers, there’s still good business in working with companies that aren’t bound for the clouds.

“There’s a whole world that can’t be enabled for cloud,” said Hicks. “That includes legacy equipment, or big resource hogs that don’t work in multi-tenant clouds. We’re after the crown jewel piece, not the ‘let’s write some code and see if it crashes’ crowd.”

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