Brookfield’s Data Center M&A Targets the AI Opportunity

Nov. 8, 2023
Brookfield’s acquisition of Cyxtera Technologies is the latest in a series of deals to capture a “once-in-a-generation investment cycle for data centers.”

Brookfield Infrastructure Partners believes we are in a defining moment for digital infrastructure. That’s why the fund has been actively buying up data center companies over the past year as it invests in the anticipated growth of artificial intelligence.    

In its latest deal, Brookfield last week proposed to acquire Cyxtera Technologies and a number of its data centers for about $1.3 billion in a bankruptcy sale. The bid for Cyxtera follows Brookfield’s 2023 acquisitions of two fast-growing development platforms, Compass Datacenters and Data4.

Brookfield intends to combine Cyxtera with its Evoque brand to create a retail colocation platform with 330 megawatts of capacity across North America. With Compass, Data4 and its data center joint ventures, Brookfield has assembled a global data center platform.  

“We're in a once-in-a-generation investment cycle for data centers,” said Felix Chan, Brookfield’s Executive Vice President for Data Centers. “In terms of megawatt capacity, over the next three years we estimate that an additional 6 gigawatts of capacity will be required to meet data demand.”

As data becomes the lifeblood of the global economy, Brookfield anticipates lasting demand for infrastructure.

“We estimate that we will need $1 trillion over the next 10 years to invest in data centers to ensure that there is sufficient infrastructure for the growth in data consumption,” Chan said in a video presentation at Brookfield’s recent Investor Day.

Brookfield’s Data Center Platform

Brookfield is one of the largest infrastructure funds, which traditionally invest in capital-intensive projects like airports and toll roads, and tend to have longer timelines for returns on investment. In recent years these funds have been pouring money into the digital infrastructure sector, seeing opportunity in the growth of data and digital services.

Infrastructure funds tend to have real estate holdings, expertise in energy development (including renewables), and access to capital. As the data center sector struggles to keep pace with surging demand, these huge investors can offer Internet-scale solutions to the sector’s challenges.

“Brookfield is one of the very few players that can provide turnkey solutions to hyperscalers around renewable power, land, and management of critical infrastructure,” said Chan. “Brookfield's data center platform puts us in a unique place to meet their global requirements through a single relationship through capital, construction expertise and operating expertise.”

Brookfield has been investing in data centers for years. In 2019 it spent $1 billion to acquire a portfolio of data centers from AT&T to create the Evoque Data Centers colocation platform, and has also partnered with Digital Realty on the Ascenty data center platform in South America and a similar JV in India.

In June, Brookfield teamed with the Ontario Teachers Pension Plan to acquire Compass Data Centers, a growing developer specializing in mega campuses for hyperscale tenants. That followed an April deal to buy European operator Data4, which operates 31 data centers across France, Spain, Italy and Luxembourg.   

The Cyxtera Transactions

The Cyxtera deal allows Brookfield to acquire a data center operator at a deep discount. Cyxtera filed for Chapter 11 in June after failing to locate a buyer or reduce its debt load. The company has used its bankruptcy reorganization to shed debt, along with some data center leases.

Since many of Cyxtera’s data centers were leased from developers, Brookfield has also worked out deals with several of Cyxtera’s landlords. Brookfield will:

  • Buy Digital Realty’s interest in four data centers for $275 million and assume leases on three Digital Realty facilities previously leased to Cyxtera.
  • Buy two of the three Silicon Valley facilities owned by DigitalCore REIT and assume Cyxtera’s lease on the third Santa Clara site.
  • Sell Cyxtera’s business in its Montreal and Vancouver data centers to Cologix.

Taken together, the transactions enable Brookfield to move forward with a streamlined Cyxtera, while securing the property and leases for its continuing data center footprint.

Cyxtera CEO Nelson Fonseca said the Brookfield deal is “a favorable path forward for our customers, partners, and employees."

“This agreement and the changes to the data center portfolio, most importantly our increased facility ownership, will enable us to build on our business momentum and better position Cyxtera for the future,” said Fonseca.

Cyxtera and Evoque: Stronger Together

Sam Pollock, the CEO of Brookfield Infrastructure Partners, said Cyxtera will be combined with Evoque, which operates 1 million square feet of data center assets acquired from AT&T.

“We believe we will generate strategic value by combining Cyxtera with Evoque to create a leading retail colocation data center provider with over 330 megawatts of capacity deployed in high demand areas across North America,” said Pollock. “The combined platform will have the scale, assets and capabilities required to provide critical infrastructure reports over 2500 customers to support the exponential increase in demand from industry tailwinds, including artificial intelligence and cloud deployments.”

Evoque’s initial focus was on enterprise colocation, but it took time to upgrade the AT&T facilities for a carrier-neutral colocation business. In 2021 the company bought cloud consulting firm Foghorn to advance a “multi-generational infrastructure” across cloud, colo and on-premises facilities. In 2022, Evoque expanded into the market for hyperscale computing, offering built-to-suit data centers backed by green energy.

Pollock acknowledged that Evoque has been a work in progress.

“I think it's fair to say that the first couple years have been challenging as we work through our tenant base (at Evoque),” Pollock said on BIP’s earnings call last week. “But over the last year we've seen a real turnaround in its leasing profile and leasing success.”

The combination with Cyxtera will result in “significant synergies from a sales and cost perspective where we can really reduce the overhead as a percentage of revenue quite dramatically, because of the combination of the two businesses,” Pollock told investment analysts.

“Now you have much more scale, as well as mostly owned real estate,” he added. “It really is a very, very different business than what the two were separately, and we're very excited by that. We're buying at a time when the tailwinds are really just starting for the edge-type centers that we have.”

Big Ambitions for Future Growth

Brookfield Infrastructure Partners’ growth is driven by the “three Ds” – digitalization, deglobalization and decarbonization. Data centers align with this strategy, along with BIP’s ability to fund large infrastructure capital projects.

With the continued super-sizing of data center campuses, infrastructure funds and alternative asset managers are becoming more important players in digital infrastructure. New campuses require vast amounts of land and power and must contend with transmission constraints in key markets.

If the future of hyperscale data centers shifts toward mega-scale campuses with on-site power, not all developers will be equipped to compete at that scale. But infrastructure funds – including firms like Brookfield, Blackstone (which owns QTS Data Centers) and KKR (which operates CyrusOne) - have extraordinary resources they can bring to bear on these challenges.

At its recent Investor Day, Brookfield highlighted the data center opportunity, noting the growth tailwinds from cloud and AI, the excellent credit profile of hyperscale players, and the ability to “recycle capital” through refinancing, securitizations or joint ventures. Brookfield has substantial real estate “land banks,” and its holdings include trading platforms for renewable power and decarbonization solutions.

That’s why Brookfield believes it can scale its data center operations from 485 megawatts (MWs) today to 1,700 MWs by 2026.     

“The explosive growth in data is creating a need for all digital infrastructure to be upgraded,” said Udhay Mathialagan, Managing Director and CEO, Global Data Centers. “I'm super excited about the scale we've created.”

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About the Author

Rich Miller

I write about the places where the Internet lives, telling the story of data centers and the people who build them. I founded Data Center Knowledge, the data center industry's leading news site. Now I'm exploring the future of cloud computing at Data Center Frontier.

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