Data Center M&A Is Surging Again After A One-Year Lull
The data center merger and acquisition market is back on the rise, and dealmaking could hit record totals in the months ahead.
After a sharp decline in 2023, data center M&A activity is surging, with nearly $40B in transaction value already surpassing last year’s total, according to a report from Synergy Research Group. The bounce back reflects a wave of dealmaking that could get stronger in the months ahead, with the potential to drive this year’s total data center deal value close to the all-time highs the industry saw in 2021.
“Whatever the vagaries of the economic and geopolitical climate, data center investments are being viewed as a sure bet,” Synergy Research Group Chief Analyst John Dinsdale said in an email to Bisnow.
The deals closed so far in 2024 have had a combined value of $36.7B, with an additional $7.1B under agreement but not closed, according to Synergy. The biggest deals so far in 2024 are Vantage Data Centers’ $9.2B equity investment, led by DigitalBridge and Silver Lake, and EQT’s equity stake in EdgeConneX.
According to Synergy, there is a pipeline of “well over” $20B in deals that have the potential to close before the end of the year. Should those transactions be executed by year-end, it could push annual M&A total beyond all-time highs seen in 2021. 2021 and 2022 were the market’s peak for total data center deals closed, with M&A volume each year approaching $50B.
But in 2023, Synergy’s data shows a precipitous drop in M&A activity. Deal value last year totaled $26B, a 47% decline from 2022.
The meaning of this volatility in deal activity is open to interpretation.
Synergy’s report echoes similar data published by CBRE earlier this month. The brokerage giant also predicted a marked uptick in investment volume and sales in the second half. According to CBRE, the surge in dealmaking compared to last year is closely tied to likely interest rate cuts, as potential sellers who had remained on the sidelines last year look to transact in anticipation of a rate cut pulling down cap rates. The spread between seller asks and buyer bids is tightening as a result, according to CBRE.
But Dinsdale argued that the annual fluctuation in total M&A — both the sharp decline in 2023 and the burst of activity so far this year — are more statistical anomalies than reflections of dramatic shifts in investment behavior, with the overall trend in M&A aiming sharply upward.
The record M&A activity in 2021 and 2022 was largely due to four massive deals of more than $10B each: the acquisitions of CyrusOne, CoreSite, Switch and QTS. These record transactions involving four of the seven largest colocation providers in the U.S. significantly skew the data, Dinsdale said. If deals worth more than $2B were removed from the data, M&A totals would drop 30% in 2022 and just 9% in 2023, with 2024 still on pace to surpass 2021’s record activity.
“Basically, the demand and level of activity has remained really strong, but the nature of the beast is that it is inherently lumpy,” Dinsdale said. “Extra-big deals can skew the trend line. If you average out the last three years and the likely final number for 2024, then you're looking at >$40 billion in closed deals per year.”
