If there is one industry that seems to be resilient in the face of almost everything, it is the data centre industry – and Vantage Data Centers is one of the strongest examples of the moment.
Founded in 2010 with headquarters in Santa Clara and Denver, the operator serves the global hyperscale players. The company currently powers services across six markets in North America and six markets in Europe from 13 campuses housing 13 operational data centres with approximately 1GW of power – but only once all campuses are fully developed.
At the helm is president and CEO Sureel Choksi who counts more than 22 years as an executive in the internet infrastructure sector, eight of which were spent expanding Vantage Data Centers from a regional player to a fast growing operator on both sides of the Atlantic.
Although most of the world has come to a total standstill since March, Choksi and his team in July announced that Vantage and Colony Capital had entered into a definitive agreement to form a strategic partnership valued at US$3.5 billion to accelerate the expansion of Vantage’s wholesale data centres throughout North America and Europe.
As part of the agreement, the Colony-led investor group will channel $1.2 billion into the Vantage portfolio, including 12 stabilsed North American data centres, which span more than 1.4 million gross square feet and boast 150MW of IT capacity across key strategic markets in Santa Clara, California; Quincy, Washington; and Montreal and Quebec City, Canada.
Over in Europe, the company completed the acquisition of Next Generation Data (NGD) from InfraVia along with the two founders of NGD. Now with a presence in Cardiff, the Welsh city marks Vantage’s sixth European market following the acquisition of Etix Everywhere in February, which gave the company an entrance into Berlin, Frankfurt, Milan, Warsaw and Zurich.
In just under a year, the company has signed one of the largest investment deals of 2020 and replicated its North American footprint across some of the hottest European markets.
However, this is just the beginning for the 10-year-old business, which is about to scale across both shores of the Atlantic, as Choksi explains.
First off, how has Vantage Data Centers coped with Covid-19 so far?
We've continued to construct new data centres to meet commitments that we have to a number of customers who are enabling work from home, distance learning, and a number of the trends that we've seen accelerate as part of Covid.
From an operational perspective, we've also, for example, deployed thermal cameras at all our data centres. And as you would expect, there are more deep cleans. We've taken a few of those incremental steps to do what we can to ensure safety and security.
On the construction side, we continued as planned, although we have had to implement social distancing measures on site, which has created some logistical challenges. We have had some minor supply chain related delays on equipment, but generally the vendor community has been great to work with.
We have over 10 construction projects going on right now, between North America and Europe. We've only thus far seen one delay and it was a modest few weeks and related to supply chain, basically a couple of pieces of equipment, core pieces of equipment that came in late. We worked with our customer, explained the situation and the customer was understanding That's the only instance. That was in Europe.
At construction sites, whenever we do have a situation where a vendor or an employee tests positive for Covid, then there is typically a site shut down for a number of days. There's deep cleaning that occurs and testing of other contractors or employees on site before we reopen.
Logistically I would say it has been challenging to manage, but fortunately, both operationally and construction wise, business continues.
We have been very fortunate so far. Obviously, we are all keeping an eye on whether we are still in the continuing first wave in the US or whether there is potential for a second wave in Canada or Europe. Those are things that we are keeping our eyes on. But so far, the impacts have been very minimal.
Why did you buy Welsh data centre operator Next Generation Data (NGD) in the middle of a pandemic?
We had done a lot of work on NGD and all of a sudden in mid-March the world sort of stopped with Covid and it was a conviction moment then by April we were 99% of the way done with our due diligence.
We had validated the demand in Wales with our core hyperscale relationships, we saw a lot of growth potential there and it would have been very easy, particularly in mid-April, to say, “let's put this on hold; the world is literally turned upside down, this is probably not a time where anyone's going to argue: you have to move forward, you've got to go, you’ve got to make a big acquisition”.
That being said, even though it was early in the pandemic, at the time what we were seeing is what we continue to see, which is our business and our industry being probably one of the most virus resistant industries out there. And we had seen acceleration in demand, as had NGD.
Why go outside the M25 motorway [seen as an unofficial boundary of London] and opt for a tier two location?
When we look at our strategy, we think there is a lot of opportunity in the FLAP markets. And today, we are up and running in one FLAP market, which is Frankfurt and we are, as you would expect, evaluating others to see where there's sufficient opportunity for us to proceed.
Secondly, there are tier two markets that are relevant. What's really interesting about the tier two markets is that prior to Brexit, prior to GDPR, prior to two to three years ago, there was a bit of a mindset in the industry that the entirety of Europe could be served out of Frankfurt, London, Amsterdam, Paris, and maybe Dublin.
What’s happened since then with GDPR, with Brexit, with just the increase in, let’s say, nationalistic tendencies of the individual member countries of Europe, is that if you're a Swiss bank, as much as technically your workloads can be served out of Frankfurt you don't want them to be served out of Frankfurt.
The Swiss banks, the Swiss insurance companies have spoken. They have shared their views with the Amazons, the Microsofts, the Googles and the Oracles of the world, and what this has caused, is it resulted in these hyperscalers companies wanting to extend their footprint. There is a valuable high growth opportunity that is emerging in the tier two markets.
Wales specifically is interesting because it is easier to scale in Wales versus inside the M25, even from just from a physical or natural resource perspective, both land and power. There are multiple hyperscalers that have deployed in Wales and by the way, those that have deployed in Wales, they're not choosing Wales instead of London, they're all in London as well, but London has constraints.
So, Wales is an interesting adjunct market, if you will, not as big as London, clearly from a demand standpoint, but it's interesting in terms of growth. When we looked at all those factors together, we saw NGD as an opportunity for us to grow in scale. It is really an attractive opportunity with a lot of growth potential.
How is the integration coming along?
Justin Jenkins, the CEO of NGD is now the chief operating officer of Vantage Europe, taking on a broader role across all six of our markets. He is also retaining a role as the president of the UK business. He is a key part of the team and we have retained the rest of the team as well.
The plan for this acquisition is about growth. It is not about cost cutting or synergies. In some cases, individuals are continuing in their previous role. In other cases, they are taking on broader geographic responsibilities, like Justin.
From a leadership and organisation standpoint we are now officially fully integrated and ready to go. There is no NGD anymore, it is all part of Vantage. The work of integrating, around driving commonality of our designs, operations and systems, that will really occur until February to May 2021.
What sort of capital are you planning to deploy in Wales? And what is the timeline in terms of expanding the campus?
We have two expansion projects underway right now at the NGD building, named DC1. We also are in the final stages of receiving a permit for the next new greenfield building, which will be DC2. And then there is a third building, DC3, that will follow thereafter. Over the course of the next three to five years, of course subject to timing and based on demand – it could be a bit faster, it could take a little longer – but the investment that we are looking to make in Wales incrementally would be in the range of at least £400 million to £500 million.
This acquisition did bring some great customers, built out capacity and a team, but there was a lot of growth potential, and this campus is expandable to a total of 180 megawatts. That may not sound that exceptional in a marketplace like Ashburn or Northern Virginia, but that is a really strong differentiator for Wales. We plan to invest significantly and incrementally at that site over time.
What other markets do you want to go to?
If we take a step back in a period of now 12 months, we have gone from zero presence in Europe to being in six markets. We do not have a target that says we want to get to 10, 12 or 15 markets in Europe. It's really a function of where can we be most helpful in enabling hyperscale growth? Either in existing markets such as FLAP markets or in new emerging tier two markets. We are very busy to say the least. We have a portfolio now in six markets that totals 500MW of buildable capacity, which is just a massive amount of capacity, and a lot of work to do to build those.
That said, we are always looking at expansion opportunities in those existing markets. I would like to see us add at least one more FLAP market. Maybe London, Amsterdam, or Paris over the next two, three years. That is going to depend on demand and where we think demand plays out versus actual opportunities including site opportunities for us to acquire a site that is attractive and that meets those demands. In the FLAP markets, we do not necessarily see a reason why we must check the box and be in all of them, but we would like to see some growth in there. And then in terms of the tier two markets and the emerging ones, for instance, I think the Nordics are interesting.
There is clearly a lot of growth in the Nordics, including renewable power. Some of the constraints that we have throughout the rest of Europe in terms of natural resources – land and power – are not as acute in the Nordics. The flip side is that there is also a lot of self-building going on by the hyperscalers in the region. They clearly have the teams, the financial resources and the capability to build whether it is in North America, Europe, or anywhere around the world, but the Nordics, they have historically been more active in building their own data centres versus leasing en masse. If that changes, then the Nordics becomes potentially interesting to us, but it is really a question of how can we be most helpful to our customers, where do they need additional options, where are they looking to expand and where can we bring time to market?
The reason we've moved so quickly to establish a footprint equal to the size of what took us 10 years to develop in North America in Europe in just a year is because we see that one of the biggest challenges that the hyperscalers have in Europe, is time to market.
Land acquisition is more difficult and expensive, and permitting is different of course by country. Permitting timelines take longer, getting power scale is much harder throughout Europe than it is in the US.
It's really a question of where can we be an enabler of speed to market in Europe that is complimentary to other providers who are already in those markets, and complimentary to any self-build efforts that some of the hyperscalers might have.
Do you have an exit strategy, be it an IPO, sale, for example?
At some point there will be some form of exit from our existing investors and whether that exit ultimately takes the form of an IPO, or a sale, or something else, remains to be seen.
We run the business to create long-term value for our customers. And if we can do that and be relevant and provide a great service, then we're going to create value for our shareholders and for our employees, irrespective of what form that ultimately takes.
At some point our investors will look for liquidity in one form or another, and I'm not opposed to an IPO per se, but I think what's been really great about the last three years with the investors that we have and the deep access that we have to debt capital at very attractive rates, is that even though we're not in the public spotlight, we have access to more than enough capital to execute on this plan.
For example, our European plan is a minimum of a $2 billion expansion in terms of CAPEX and M&A. We have the firepower financially to be able to compete with the publicly traded providers. There is not the necessity to go public to have access to capital.
Ultimately, our investors, down the road will decide whether that is the right path for them. That is not what we are focused on. We are spending a lot of time thinking about how we grow the business, how do we continue to expand, how do we become more relevant to our customers? And that keeps us busy enough.
Do you have any plans for Asia?
We do not. We are literally 12 months into our European journey and moving at a much faster pace than I think we even expected just given the opportunity. It is early for us to think about other geographies at the moment.
With everything that has been happening in the US in terms of Huawei, Tencent and others, have you seen Chinese customers becoming more reluctant to work with you?
We have in the last 18 months. More recently with the TikTok and the Tencent [White House] orders. That has been a very prominent topic in everyone's minds, but even over the last 18 months, just given the China trade relations between the US and China.
What we have seen is Chinese companies become more cautious in terms of making large scale investments in North America. It does not mean they aren't for us particularly; it doesn't mean they're not making it and they're not growing.
Others have seen the benefits of some of that demand in the US, but they are definitely more cautious because the relations between the two countries are not good. Even before this recent executive order by Trump. We have seen slower deal velocity, more approvals, a lot more start and stop.
