Three global infrastructure funds will invest $320 million in Tierpoint, a regional data center provider that has built a national network through a series of acquisitions. The deal positions TierPoint for further growth, and signals that large investors remain interested in digital infrastructure, even amid the difficult market conditions create by the Coronavirus pandemic.
Argo Infrastructure Partners, Wafra, and Macquarie Capital Principal Finance will join with TierPoint’s existing investors – a group that includes Cequel III, Ontario Teachers’ Pension Plan, RedBird Capital Partners, The Stephens Group, and Thompson Street Capital Partners – in a $320 million preferred equity investment round.
Tierpoint will use the money to fuel its continued growth, and will also restructure its debt, paying off a secondary credit line and reducing the balance on its revolving credit facility. The company expects the round to be closed and funded by mid-April.
TierPoint operates a national network of 40 data centers in 20 markets. 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 and the Lehigh Valley of Pennsylvania. 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.
“This investment agreement was reached in what we all know is a very challenging environment,” said Tierpoint Chairman and CEO Jerry Kent. “That’s a testament to the strong performance TierPoint has already achieved and our prospects for continued growth. We have a very strong balance sheet, with significantly reduced leverage and improved liquidity, an infusion of growth capital, and we believe, a long runway of growth ahead of us, as we continue to invest in our services, infrastructure, and people.”
Active Acquirer in Regional Data Center Markets
TierPoint’s story is one of expansion through acquisition. It entered the data center business with its 2010 deal to acquire Colo4, a Dallas-based colocation provider. Since then, 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.
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.
“TierPoint is well positioned for robust growth that will allow the company to expand its market leading position and capitalize on the tailwinds supporting the data center industry,” said Fawaz Al-Mubaraki, Chief Executive Officer of Wafra. “Jerry Kent and the TierPoint senior management team have proven themselves as leaders in the digital infrastructure sector, and we are excited to partner with the TierPoint team to help fund the company’s next phase of growth.”
Infrastructure Funds Stay Busy
The rapid growth of cloud computing has attracted new types of investors in the data center industry, who are eager to capitalize on the sector’s success. That includes infrastructure funds and sovereign wealth funds with deep pockets and extended time horizons.
Infrastructure funds, which traditionally have invested in projects like airports and toll roads, tend to have longer timelines for return on investment than private equity funds, which have been the prime movers in data center investing. The industry has also seen interest from sovereign wealth funds – state-owned entities with deep pockets – as well as wealth management firms that aggregate funds from affluent families.
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Wafra and Argo are both infrastructure funds based in New York, while Macquarie is an Australian infrastructure fund that has been an active investor in the data center sector, including equity positions in Aligned and Netrality Data Centers.
TierPoint has been seeking investment since last year, amid reports that it was seeking between $250 million and $500 million. Kent said the investment positions TierPoint for further growth in its target markets.
“Our business has tremendous momentum,” said Kent. “In the last two years, we’ve increased sales bookings by 26% and the first quarter of 2020 will be another outstanding growth period. We’re also in a unique position to help our customers navigate the current crisis.”
Citi and DH Capital served as financial advisors to TierPoint in the transaction and Goldman Sachs advised RedBird Capital.