M&A: an emerging strategy in the African data centre market

In recent months, the African data centre market has been characterized by large-scale M&A activity. First, Equinix acquired MainOne, a West African data centre provider with three operational facilities and one under construction. Then, just recently, Digital Realty announced that they had finalized a deal to acquire Teraco, an African data centre provider with seven facilities centered around urban markets in South Africa, including Johannesburg and Cape Town.

Why are mergers and acquisitions heating up the African data centre market?

Acquiring ready-built facilities allows companies to avoid the expense and complications of new construction. A company that builds a new facility from the ground up has the advantage of control: they can choose the design and apply specific solutions that have proven to be effective at other locations.

Additionally, a constructed facility has already overcome the infrastructure challenges which are often a more critical consideration in an emerging market, like many on the African continent.

As Chief Business Development Officer for Liquid Telecom, William Marais said, “”Lack of access to reliable power and connectivity, global best practice in design and local construction expertise are challenges for all data centres, but are more pronounced in developing markets.”

Acquisitions also help companies overcome soft challenges, like making connections with clients, local governments and regulators, and additional business opportunities. Instead of starting from scratch, an acquired company comes with a pre-established customer base. Moreover if, as in the case of Digital Realty, the investing company decides to maintain company leadership beyond the transaction, they can carry that knowledge and experience over to the new organization.

Construction of a new facility takes time, and that time represents an opportunity cost to data centre providers. In a fast-moving, high-interest market like the African data centre, early movers have a distinct advantage. They can build brand familiarity, develop relationships with business and government, and establish their customer base while their competitors are still building.

For those large-scale data centre providers with the money to invest, a merger or acquisition can represent a solid strategy compared to construction. An acquisition helps a provider overcome challenges associated with data centre construction – including navigating a new regulatory environment, managing infrastructure, and establishing a customer base – which can be even more challenging in developing countries.

Because of these built-in advantages, an acquisition can help a data centre provider take advantage of strong demand in a growing, but underdeveloped region. Africa has strong demand to make it ripe for data centre investment, while still being a relatively open market for large-scale industry players.