Accelevation Holdings, LLC, a vertically integrated group of manufacturing companies serving the data center, electric vehicle and robotic markets, recently announced its acquistion of Instor Solutions for an undisclosed sum. The parent group is now integrating Instor's data center services expertise with co-brand Conatech's containment and white space offering to form the Accelevation Data Center Business Unit.
Instor is an expert in data center design, structured cabling, power infrastructure, and specialized containment and cooling technologies with over 30 years of experience, headquartered in the San Francisco Bay Area with a second office in the Ashburn, Virginia area. Conatech is a manufacturing company specializing in data center containment, caging, infrastructure, and installation services with competitive lead times. Part of Accelevation's portfolio of vertically integrated manufacturing firms, which includes Southeast Tool, Revolution Iron Works, Coach Tool and Die and Skylab Manufacturing, Conatech leverages the capabilities of its associated portfolio companies to design, develop, and implement data center platforms.
The brands now join forces to establish a single customer-facing entity, combining product design, manufacturing, and supply chain capabilities with white space integration, services, and project management expertise. Accelevation contends the new vertically integrated, strategic organization addresses key customer pain points, providing the ability to reduce costs and shorten lead times, while offering expert integration services for hyperscale, colocation, and enterprise customers to bridge the industry's workforce skills shortage.
The acquisition establishes a new, vertically integrated data center business unit comprising both brands to create a single, customer-facing entity, forming what the companies contend is the largest integrated data center services solutions provider in the U.S. The Accelevation Data Center Business Unit will aim to solve key challenges for hyperscale, colocation, and enterprise customers, including faster product design, manufacturing, and supply chain capabilities, with dedicated white space integration, services, and project management expertise.
By combining both brands, Accelevation claims it has "created the only organization within the U.S. market capable of providing fully integrated data center infrastructure product manufacturing, with self-performing, fit-up solutions design and project delivery." The company said its new comprehensive services offering will enable hyperscale, colocation, and enterprise data center operators with the benefit of enhanced speed and efficiency throughout the entire data center lifecycle.
Through Accelevation's newly integrated sales, manufacturing, and operations teams, Conatech's customers will gain immediate access to the data center white space design, build, and integration services expertise that Instor has incubated and built its reputation on over three decades. In turn, Instor receives direct access to the vertically integrated manufacturing capabilities used by Accelevation to produce its Conatech data center products.
In wake of the merger, Accelevation's President and CEO, Michael Rubiera said, "We are thrilled to welcome Instor to the Accelevation portfolio of innovative companies. Combining Instor's 40+ sales and project management professionals into our Accelevation portfolio creates one of the most comprehensive and all-encompassing solution providers of data center products and installations in the world. We couldn't be more excited about the possibilities and growth this acquisition provides."
DCF sat down for an interview with Instor's Sam Prudhomme, now president of the Data Center Business Unit of Accelevation Holdings. Prudhomme noted that by combining Instor's white space design and services expertise with Conatech's manufacturing and product capabilities, the new business unit is uniquely positioned to serve and support the U.S. data center market as it fulfills its growth potential.
The interview has been edited for length and clarity.
DCF: Can you provide some background on Instor as a company leading up to the recent acquisition and integration with Conatech?
Sam Prudhomme: Instor was started by Robert Hancock, and for about the first 20 years of the business, was just a reseller to a couple of large players in Silicon Valley, specifically Apple and a couple of other legacy companies. Then Jack Vonich, former CEO of Instor, was hired and said, ‘Product only’ is not the way to go - this was eleven years ago - he said, we need to start doing services. This coincided with the very initial virtualization of servers, cloud builds, and the discussion around what cloud could be. That's when the proliferation of larger-size colocation deployments began. We started to work with colos to build out white space for tenants.
At the beginning, Instor just basically subcontracted everything out. They had some project managers on staff who understood what white space infrastructure needed to look like, and how the projects needed to go, and they would hire electricians and low voltage technicians who would run the projects. Massive amounts of proliferation continued over the last decade, and basically a lot of these colos began to grow so massively, they created their own fulfillment teams and had their own project managers, and they were less interested in companies that could project-manage for them; they were more interested in companies that could do the work.
So, about 4 1/2 years ago, we began creating our own internal ops team that would self-perform and do all of the work of the electrical fit up: infrastructure installation, caging, containment, conveyance, low voltage connectivity, fiber, copper, all of that to the rack; and then also, all the electrical fit out of the white space. Fast forward five years and we went from about $19 million to $75 million in 2022. When I started 24 months ago, my job was to structure the business for scale. We separated ops from project management and created a solutions team, a project management team, and an execution team. With three clearly divided lanes of focus, we were able to scale the business from about $29 million to $75 million in two years.
We began to see the onset of these massive cloud projects. AWS was buying everything up. The pandemic release set off the move to the cloud and everybody started to work off-premises, so everything needed to be shared across the cloud, and then applications for the cloud became more prevalent. The use of those applications also created the demand that we're seeing. Because of that, we started seeing larger and larger projects from our colo customers, and we understood that Instor alone could not capitalize on the opportunity. We would be having to say no to some of our best customers, not allowing us to continue that growth pattern.
At the same time, Accelevation had experienced the same growth, but on the product manufacturing side. They had purchased Conatech about two years ago, a manufacturer of containment, custom containment, custom caging and also ground-supported steel structures, conveyance devices for hyperscale spaces that you've seen a lot of. They saw the same growth based on the same activity that we saw, but on the manufacturing side; we were on the service side.
We looked at the synergies. We looked at the common customer bases that we had, and we looked at the fact that almost every single white space fit up that we did had products that they manufactured, and every single one of their products that they manufactured were going into a white space fit up that we designed and installed and delivered for customers. We decided it would be a good idea to look into consolidating, so Accelevation bought Instor, and now we are the largest North American organization that does full in-house design, white space fit up design, and project delivery, along with white space infrastructure and custom manufacturing here in the United States.
DCF: What has the process been like, integrating the business teams of Instor with Conatech?
Sam Prudhomme: At the beginning of the integration discussion, we were thinking about InStor and Conatech operating under common ownership, a sister-company type of working relationship. When we got together with the group and all started to put our heads together, we noticed that probably was going to be like a flash in the pan to the industry. ‘Oh great, they have common ownership.’ You know, Schneider's done this for years, common ownership with service and product. Other companies have done this, and it's just been a little bit less than thrilling to the customer base, so we decided to just go all-in and consolidate the teams completely.
It's one business unit; it is a white space fit up company that has custom infrastructure manufacturing capabilities. Conatech salespeople and InStor salespeople are now just salespeople for the business unit, which will go by the name of InStor. We have people who were just selling infrastructure, who are now selling the entire white space fit up, and we have the people who are selling just white space fit up. Now we can sell white space fit up with custom manufacturing attached, so we've eliminated a middleman to our end users. Whereas some colo would have to negotiate with Conatech to buy their material for an end user, and then they would use a contractor to install that so the end user, the tenant of the colo, was paying for both the colo’s markup and the contractor’s markup - now the contractor's gone.
We are the manufacturer now, so Instor does the entire job, the material that we manufacture has no added markup from a third party, and we provide all the service for the white space fit up, and all of the infrastructure to the colo, to the end user. So we've created quite a commercial advantage for the industry that has not yet been seen. I think our biggest goal and our biggest challenge is succinctly communicating the advantage that we've created for the end user through the consolidation.
DCF: Can you talk about the supply chain advantages to customers using an integrated organization like you've formed here?
Sam Prudhomme: Let’s take a step back and look at Conatech by itself for a second. Conatech did really well, growing fast during the pandemic because they were a vertically integrated manufacturer. So that integrated supply chain really propelled them during COVID. When things really started to shut down and other companies were trying to get commodity components from China in different places, we manufactured our own. We didn't rely on any third-party manufacturers to complete our manufacturing process. We have CNC machining and different types of automation tools that allow us to create all our own hardware, all our own joining plates, and a lot of our own supply chain that goes with making an entire containment, caging or conveyance system.
When you look at Instor separately from Conatech, you have to say, OK, where do we go to control supply chain as much as possible, to reduce a certain variable that would impact the success of a project? I would say a good 50% of the infrastructure that goes into a white space fit up is caging, conveyance and containment. Now that we're together, we control that. We also have the ability to do what I would consider Manufacturing as a Service, so that we can support other long lead time items for customers in a very efficient way.
For example, we had a project out West for a very large electrical vehicle manufacturer. We had a very tight timeline within a colo and we could not get fiber tray. But we could manufacture our own fiber tray liner, and we could utilize basket tray that was already on-site. We manufactured our own liner, we were able to get away from using fiber tray, and we were able to propel the schedule forward by about six weeks. Those are the things that we can do from a supply chain integration standpoint, attached to the fit up company, where we know what needs to happen, we can have our manufacturing capabilities, take care of it, and we can move through the entire construction of the project and remove variables that would impact it otherwise.
DCF: What’s the ramping up period going into the new strategy and process for the combined organization; does the InStor side of the business lead with the customer contact?
Sam Prudhomme: From a go-to-market standpoint, the businesses joining is great because we had a lot of success within the colo space and Conatech had a massive amount of success with end users, hyperscale end users specifically. So combined, we now have influence within the colo community and within the end user community. Our salespeople that were legacy Conatech and legacy Instor already have their running lanes and there's not a lot of coincidence of overlap there. We're segmented by market and by geo-market and by customer, and every salesperson that worked for Conatech and worked for InStor now can sell the entire white space, fit up and all of the manufactured products that Conatech used to sell. As an organization, I say this a lot, but we are a self-performing white space design, new-project delivery company with in-house infrastructure manufacturing capabilities, and that's a long sentence. But it's one business that does all of that and each salesperson is driving all those sales towards their particular targets.
DCF: Regarding sustainability considerations over the lifecycle of a data center, how does a company like yours, and now the combined company, grapple with those? What are the customer concerns and how does Instor deal with them?
Sam Prudhomme: Are we talking about sustainability of design, or actual sustainability from a scope 1/2 and 3 carbon footprint standpoint?
DCF: Both.
Sam Prudhomme: Sustainability of design is probably at the forefront of what we do from a solutioning standpoint. We really dig in with the customers and try to design infrastructure and solutions that will support current workloads, and what the infrastructure of those workloads looks like now and into the future.
We also design custom solutions that can adapt to adaptable situations, specifically around workload infrastructure, as it changes from cloud computing, possibly to AI. Eventually I'm sure we'll get to some sort of joint AI cloud environment that will begin to make a lot of sense based on applications that have yet to be brought to market.
Design sustainability is what we do on a daily basis; on carbon, the general nature of the products that we make moves towards efficiency in the data center. Like containment, which basically offsets 80% of the energy usage in the space. Containment used to be a luxury, it moved to a commodity, now it's a straight-up necessity.
You cannot design a space that does not have hot or cold aisle containment, because the workloads within the space and the density of the racks require you to do so. And because it's the cheapest thing that you can buy that has the greatest effect on your energy usage, and your efficiency and sustainability, from a power consumption and a water consumption standpoint. Everything that we manufacture is driven toward the use and the creation of sustainability inside the space.
DCF: When people are designing and building new data centers right now, the idea of having to be able to accommodate AI workloads, that's built-in from day one now, I'd imagine. If you're a data center designer and builder, when you're going into your conversations with new customers, where is AI coming in, in terms of considering the design for a facility?
Sam Prudhomme: I think that some people understand what AI infrastructure looks like to them in some large companies. Hyperscalers still don't yet understand what it looks like, so what we're seeing is, Tier 2 saturation is insane right now, Tier 1 saturation is insane right now. Like Virginia, you can't build anything. Dallas proper, the Metro area is exploding. Phoenix, Hillsboro: You know those places are starting to tighten up big time, and there's nothing really coming out of the ground for a certain amount of time that hasn't been preleased.
When you move into what I would call Tier 2 markets - Chicagoland, Austin, the surrounding Dallas area, Atlanta and some of those places - what we're seeing is, hyperscalers get into those Tier 2 markets, and hyperscalers who have their AI infrastructure designs and the SoCs together can move forward to get to lease, because those leases are needed for the colos to get funding to build the space for them.
Those hyperscalers who do not have their AI infrastructure designs and SoCs experience a massive amount of attrition with those in Tier 2 and Tier 3 who are not used to negotiating with them, and they end up actually causing a lot of delays in projects, and a lot of pain for both the Tier 2 colos and the hyperscaler. So you see them exiting a lot and trying to figure it out. You saw Meta pull back, you're seeing potentially AWS pull back to get their AI infrastructure in place and understood from a design standpoint. They can move much more quickly into leasing and building into Tier 2 and Tier 3’s, where there is actual available space - permitting's done, groundwork’s being done, and buildings are coming out of the ground.
Some of the larger hyperscalers already have their stuff together. They're moving AI applications. They have products that are in service. They have people that are using their AI platforms already. They know what's going on. They're soaking up Tier 2 and Tier 3 and they're moving very, very quickly into those markets. I think I saw an article the other day by you guys that said 2.1 gigawatts in the last 90 days has been leased. Almost all of that's driven by AI, almost all of it’s in Tier 2 markets and Tier 2 colos. We're not talking about the massive $15 billion monoliths that are out there. We're talking about up and coming people that design their entire businesses around retail, and are now building to suit for hyperscale AI applications.
It's an ever-changing market and over the last two weeks we've seen a complete change in the environment, in why they're buying and pre-leasing. It used to be pre-leasing just to get ahead of permitting and ahead of power consumption. Now, it's pre-leasing because we have to get these AI applications up and running because consumption is starting to grow.
DCF: Any closing points about the acquisition of Instor and the integration of a companies through Accelevation, LLC?
Sam Prudhomme: I think it's understanding the market and the education of the market as to what our commercial advantage is. We are the manufacturer and we are the contractor. We are one in the same and so we've eliminated the need for multiple parties to exist within the confines of a white space fit up project. In doing so, that savings, that lack of additional markup or additional margin needed for that third party, gets given right back to the end user, who can build out their space more efficiently, more effectively, reducing its cost and reducing its churn, and reducing the potential for failure due to increased complexity.
