Data center service provider IO has raised $445 million in debt capital from Deutsche Bank, and $60 million in additional growth capital from an affiliate of Macquarie Capital, the company said today. The financing is the latest sign of strong interest in the data center industry by lenders and investors.
IO will use the proceeds from the Deutsche Bank loan to refinance debt, and to exercise options to acquire the land and buildings underlying its IO.New Jersey and IO.Ohio data centers. The company will use the Macquarie Capital funding to further its international and domestic growth and for general corporate purposes.
“This capital raise reflects the robust momentum in the worldwide data center market – the physical layer of the Internet,” said George Slessman, chief executive officer of IO. “We will use this capital to continue our disruption of the data center industry; bringing web scale data center capability to any scale business.”
The $505 million financing is a good sign for the data center industry and its ability to raise money to build and operate new data centers. It follow’s last month’s debt financing for Vantage Data Centers, which like IO is privately held. Vantage initially sought to borrow $200 million, but received strong interest from lenders, prompting the company to increase the credit line to $295 million.
“IO’s ability to execute a large-scale capital raise in the current market environment represents a substantial vote of confidence in IO and directly benefits our customers,” said IO President Anthony Wanger. “IO attracts capital because we attract and grow key customer relationships.”
Investor Confidence is Key to Growth
Wanger has been tracking data center financing since 1999, and says the industry has come a long way from the early days of the Internet boom, when many real estate investors were wary of data centers. He says lender confidence if critical because of the expense of building quality data center space.
“Our ability to gain access to capital is important,” said Wanger. “The data center business is a capital-intensive business. It takes a large commitment of capital to build a portfolio. I’ve always looked at data centers through the lens of capital. For me, this is the best day ever.”
IO has built a strong growth story as it has expanded its global network of data center facilities. The company has grown beyond its initial base of operations in the Phoenix area (which also includes a data center in Scottsdale) with a global expansion that now includes data centers in New Jersey, Ohio, London and Singapore. Its customers include Goldman Sachs, Lexis Nexis, and CenturyLink, among others.
In addition, the value of Internet infrastructure has been reinforced by the performance of publicly held data center companies, most of whom are operated as real estate investment trusts (REITs). In 2015, returns on data center REITS outperformed most other real estate asset classes.[clickToTweet tweet=”Tony Wanger: Investors are starting to appreciate the advantages of the data center space.” quote=”Tony Wanger: Investors are starting to appreciate the advantages of the data center space.”]
“Investors are starting to appreciate the advantages of this space,” said Wanger. “We’re in a terrific market. There’s an enormous amount of demand, and even the core markets are still investable. There’s a huge investment cycle going on right now. I don’t think there’s any question the capital markets understand data centers much better today.”
IO is structured as an LLC, and likely to stay that way for now, despite the markets’ enthusiasm for shares of REITs holding data center assets.
“We currently think our structure (as an LLC) has advantages, but our approach has always been to keep our options open,” said Wanger.
Buying and Building
In addition to purchasing the properties for its New Jersey and Ohio data centers, IO also has bought nine acres adjacent to its Phoenix data center campus, where it will build a three-story data center to support its colocation and cloud services. IO plans to break ground on the new building in late 2016 and open in 2017.
IO has been a pioneer in the market for modular data centers. In 2008, IO created an internal division to develop hardware and software products to support its expanding footprint. These pre-fabricated products have evolved rapidly, offering flexible designs that can create an enclosed data hall that looks and feels like traditional data center space. In 2014, IO spun off BASELAYER to handle global sales of module data centers (BASELAYER Anywhere) and infrastructure management software (BASELAYER RunSmart OS) to large enterprises. IO continues to focus on its core colocation business.