For 25 years Marc Ganzi and two colleagues have been investing in cell towers, data centres and fibre networks – and now in their 5G equivalents, including small cells and other edge infrastructure.
The most recent acquisition to be announced was in May, when his Digital Colony and a Scandinavian infrastructure investor, EQT, agreed to buy US fire firm Zayo for $14.3 billion including debt. Within days of the deal’s announcement, Ganzi happily agreed to an interview with Capacity, but his team made it clear that he wasn’t going to talk about Zayo.
The deal will need to be checked by Zayo’s shareholders, US regulators and in other regions where it has infrastructure before being finalised in the first half of 2020. But it’s still a great opportunity to find out how Ganzi and his operation tick and explore their industry opinions. “Can you tell me about the Zayo deal?” I ask, even though his PR team are listening in. “No,” he says firmly.
As CEO, Ganzi is the public face of a cluster of companies around Digital Bridge, run by him with Alex Gellman and Jeff Ginsberg. All three were at the Wharton School of Business in the early 1990s. They’ve stuck together for 25 years, but it didn’t start that way.
“My ambition was to be in finance and real estate,” explains Ganzi, adding that his first job after college was at a real-estate investment trust, “doing M&A work and buying distressed real estate”. But some of the buildings had “a couple of these things called ‘antenna leases’ with cellular telephone companies”, he recalls. “Because I was the young kid from Wharton, everyone thought that I understood technology and that I was smart.”
Investor’s dream
It was an investor’s dream – 30-year leases on “space that was deemed a liability, the roof, collecting rain”, he says. “When people started paying us thousands of dollars for rooftop space, a light went off in my head.”
He got together with Gellman and Ginsberg, who knew about mobile phones and had started a cellular phone company. “Cell phones were coming. There was just going to be this massive surge in real estate. The three of us got together – I understood real estate, they understood cellular communications, and we put these skills together,” he says. “It was completely accidental, like all great things in life.”
Today Ginsberg is the COO at Digital Bridge and Gellman is CEO of Vertical Bridge, the group’s tower specialist. Vertical Bridge is one of six main businesses within Digital Bridge; Andean Tower Partners, Mexican Tower Partners, DataBank, ExteNet Systems and Vantage Data Centers.
There’s also a parallel business, Digital Colony Partners: “One is a fund; one is an investment manager,” says Ganzi. How much have they invested? “Our legacy companies are about $11-$12 billion, the fund is $4.1 billion.” So we’re talking about $16 billion or so invested or to be invested in digital infrastructure.
Does that include Zayo? He can’t talk about Zayo. But it’s Digital Colony that is working with EQT to acquire Zayo. In April the same unit bought a UK-based outdoor wireless company, iWireless Solutions, to add to its existing indoor specialist, StrattoOpencell. If you’re a rugby fan and use mobile at the Twickenham stadium in south-west London, it’s iWireless that’s likely to be delivering your signal. In February Digital Colony agreed to buy Toronto-based Cogeco Peer 1 for the equivalent of $574 million, from Cogeco Communications.
Global investor
The team may be 25 years old, but Digital Bridge Holdings is only six years old, founded specifically to invest in digital infrastructure. Founded with Ben Jenkins, formerly of Blackstone, the operation has as its primary objective “to put our personal capital to work behind management teams, ideas and platforms that we really felt represented the best opportunity for investing in the future of digital infrastructure”, says Ganzi. “We have established ourselves as the leading global investor, owner, manager and operator of digital infrastructure. Through Digital Bridge Holdings and the Digital Colony Partners fund we are managing nine different investments globally, and we feel reasonably good about our place in the world as an investment manager.”
I probe him a bit more on why digital infrastructure is actually real estate. “At the end of the day digital infrastructure is probably more parts real estate than technology,” he says. “When you think about data centres and towers and fibre networks, they require entitlements [permissions and approvals] and a real property interest, whether that’s owning the land, whether that’s an easement, or a long-term lease.”
These concepts mirror those that investors in real estate will understand. “Remember, when you place infrastructure, it’s on land. Fibre’s underground, you need an easement; a data centre is sitting on land, you need to own the acreage, or you need a long-term lease; a cell phone tower sits on a parcel of real estate and you own that land or you have a lease.” The business cases for digital infrastructure “are completely ingrained in real-estate principles”, he adds.
“And the difference between being a good operator and a bad operator is your ability to understand those nuances – how to ingrain yourself into those communities, get the entitlements, have the right agreements, make sure you’re fully compliant with local municipal, county, state, federal [regulations] – there are so many different jurisdictions that relate to building real estate. You have to understand those principles very carefully. The folks that are really good are the ones that build the best locations – and the folks that aren’t very good at that end up running into trouble.”
Digital infrastructure is a “very unique real-estate class”, he notes. You have to “have the ability to operate at five-nines standard”. This is a familiar term in telecoms, though not in traditional real estate. It means the system – tower, fibre, data centre or switch – has to run 99.999% of the time, and off, for maintenance or because of a fault, for an average 0.86 seconds a day.
“We are very focused on uninterrupted service for customers, and that whether it’s a fibre connection, a data centre connection or a tower connection, even a small-cell connection,” says Ganzi. “These are the things that matter and the things our customers judge us on. They judge us not only on our ability to build the facility and to provide the facility, but they also want to make sure it’s going to run well, in an uninterrupted fashion.”
So what makes him and his colleagues different from other investors? Others “often don’t realise these aren’t like toll roads, shipping ports, or water treatment facilities”, says Ganzi. He applies what he calls “the asset test – ensuring we have a great location and a great facility that’s been engineered to accommodate multiple users”. A multi-tenanted, multi-use facility means “we can grow cash flow”, but much care is taken over Digital Bridge’s paperwork, “making sure you’ve got the right entitlements, making sure you’ve got all the permits necessary for the assets. These things are essential.”
Checking the paperwork
Digital Bridge checks customer agreements, leases and licences. “Is [the investment] bankruptcy protected? Do you have early termination provisions?” What happens if the customer grows? “There are so many nuances in these master lease and licence agreements that the different between a tower being worth eight times cash flow and being worth 25 times cash flow is directly correlated to the quality of the paper.”
In the quarter century since the Ganzi-Gellman-Ginsberg group got together “we’ve negotiated over 40,000 leases across the globe – in the data centre, fibre, tower and small cell space”, says Ganzi. “Having that purview of 40,000 agreements certainly affords you a lot of battle scars.” And the business plan is important. “You’ve got to have good market demand for the asset, you’ve got to have high quality management lined up, you have to understand back-office systems, you have to understand how to finance the asset class correctly,” he says.
He likens Digital Bridge to putting “the best athletes on the field together with a value proposition that is appealing to investors and good for the long term growth plans of our customers”. Which takes us inevitably to polo. The majority of pictures in a web search of Ganzi show him horses and polo teams. Why? “My family has been involved in horses since I was a child.” His father started playing polo 30 years ago. “My wife and children play, and it’s become a family tradition. It’s a lot of fun, it’s a great thing to do on the weekend, and it keeps me closely connected to my children.”
Ganzi’s healthy values around work-life balance are also key for Digital Bridge. “I demand every one of my team has a passion, other than going to work every day – whatever it is, polo, scuba diving, bike riding,” he says. “You do need time to disconnect, you need time to spend with your family.” But you’re not going to say anything about Zayo, are you? “No.”
View this executive interview as a digital page in the June/July edition of Capacity magazine and see what other great articles you may have missed out on!
