Randy Brouckman, CEO of EdgeConneX, says that this deal was so much more than the average edge acquisition. The company launched a formal process around the second half of last year, having been approached by a number of companies who were interested to acquire it.
EdgeConneX and EQT had some discussions before the process, as well as a number of other firms like EQT and some existing data centre providers who had reached out to show strong interest.
“Our plan wasn’t to necessarily sell or not sell, but as we looked at the data centre industry’s evolution and where it was, where we were and what we thought we would need going forward, all of us felt confident that just as we had gone from venture capital to private equity, we really were at an inflection point where it made good sense for our customers, our employees and our shareholders, if we took the next step from private equity to infrastructure funding,” says Brouckman.
“We were very active with a number of parties and whittled it down to EQT over the course of running that process.” Had it not been for the Covid-19 pandemic, the deal with the Swedish investment firm could have been announced earlier.
“The reality is, just as we were seeing the effects of Covid and everyone was talking about the ‘new normal’ and companies were closing offices with their staff working from home, that was about the time we had reached the final part of the deal, but we decided to let the capital market settle out,” Brouckman adds.
“The type of infrastructure that we provide is critical no matter what the situation is on the outside. And Covid-19 has only accelerated many companies’ digital transformation journey, which has, in turn, grown the demand for third party data centres.”
Private equity pick
The question remained that with other companies also in the race to acquire EdgeConneX, why EQT? Brouckman says there were a number of factors that made EQT the best choice.
“EQT stood out in a few areas. First, they aligned with management’s view that EdgeConneX is the right company to continue to be a global platform and has a lot of growth remaining in its future. This platform focus was their core investment thesis in EdgeConneX,” Brouckman explains.
“Secondly, EQT understands how critical data centres with fibre and telecommunications infrastructure are in the overall infrastructure play. Infrastructure was not born in the communication space.”
He says that when you look at the digital logistics of today, the locations where digital commerce data is collected and distributed — where it’s stored and how it gets to people, platforms, and devices — that’s the role played by the modern data centre, and he adds that EQT has always been at the forefront of that infrastructure play.
“EQT was one of the first to understand that and has been one of the most active in the communication infrastructure space, which were the qualities that tilted the scale in their favour and our decision to be acquired by EQT,” he adds.
Both companies had spent time with one another and found that they were both aligned on the strategy and opportunities for the next stage of the EdgeConneX platform.
Despite the fact that Brouckman did not comment on the US$3 billion price tag that had been attached to the acquisition by several industry analysts, there is no denying that the deal is significant.
Strategy focus
With the deal scheduled to close in Q4 2020, it is natural for people to ask about the strategy that will follow the acquisition.
“We’ve talked about new markets we want to enter as edge markets. We’ve also discussed new markets we want to enter as large-scale core or hyperscale deployments,” he adds, explaining that both companies are in agreement on which markets should be entered organically and which through acquisitions.
What EdgeConneX is planning to do with EQT as its backer is expand many of its edge markets to become core campus markets. The company also plans to enter new markets via edge deployments, as well as a couple of new markets that will start as hyperscale opportunities.
“You’ll see us much more active on the M&A front — nearly all of the growth that EdgeConneX has had over its history has been organic, and we will continue to lead with organic growth, but we’ll be better positioned where it makes sense to do those strategic acquisitions,” he reveals.
“Our core differentiator has always been bringing the data centre to where our customer’s customer needs it — proximity to capacity, connectivity, and power. That is a fundamental change in the data centre model that we have pioneered — it is what allows the edge to happen.
“We put the data centres where the content and the broadband networks need it to be — close to the aggregation points in those markets. That location sensitivity applies not just at the edge, but also at the core. Many elements of the core, cloud availability zones, for example, have latency and distance sensitivities, and that is what we do well” he adds.
Brouckman says that the strategy will continue to be a relentless focus on their customers’ needs and providing them with the ultimate data centre solution, no matter the location, the size, or density needed for the customer’s deployment requirements.
Market drivers
The massive growth of the IoT market has not shown any sign of slowing down, and according to IDC, there will be around 41.6 billion things connected to the internet by 2025. The IoT market is expected to be worth $24.88 billion by 2022. As the need for IoT has risen, it has accelerated the growth of edge. This is one of many edge market drivers, says Brouckman.
“The insatiable appetite for content, the two-way communications that we’re all finding are necessary for this current climate, and what people are now coming to realise, is we’re seeing instances of the cloud, both the general cloud, as well as special-purpose clouds, make their way to the edge,” he adds.
“In the last couple of years, we’ve seen a number of gaming clouds come to the edge, and now this year we’re seeing the general public clouds move further to the edge. This is not just the case for on-ramps and network nodes of the clouds at the edge, but true instances of compute and storage and the security around those things, make their way to the edge.
“These aren’t gigantic deployments, but these services provide the compute and storage needs for applications that have to be at the edge, for example, industrial IoT, autonomous vehicles, gaming, AR and VR. These underlying cloud deployments drive and enable those types of services to be deployed,” Brouckman continues.
He says that ultimately, the edge is all about proximity, and bringing the content, the cloud, the games and all of these emerging applications and workloads closer to the people and businesses using them, in order to ensure a quality user and customer experience. That is why the edge will become ubiquitous and increasingly distributed.
Strain on edge
In 2013, EdgeConneX constructed its first general-purpose edge data centre in Houston, Texas, to support content service providers. Shortly thereafter, 23 more edge data centres were rapidly built to create an edge platform across North America within two years. Subsequently, cloud service providers began acknowledging that they too needed to take their services and accessibility closer to the enterprise.
Now, the company’s broad footprint and customer-focused business strategy have proven ideally suited to support strategic data centre demands, from the hyperscale to the edge. And EdgeConneX now has a global footprint, operating and developing over 40 facilities in 33 markets across North America, Europe and South America, with more to come.
“A general premise that we can now state as fact is the argument that used to be viewed as edge versus core. It is really a false choice and a false narrative. What we’ve proven now is it’s more edge and more core. One, in no way, replaces the other,” says Brouckman. Instead, the two operate in tandem and complement each other. The ability to support customer needs for a full continuum of requirements from edge to core from a single data centre provider, has also been a key value proposition for EdgeConneX.
“As we have seen, the growth of the edge has not been at the expense of the continued accelerated growth of the core. We are seeing growth in both aspects of the pipeline, but I do think there will be strains.
“When we started the company 10 years ago, it was on a simple premise that there was a new edge of the network coming, and that was going to require new facilities and new infrastructure for the compute and storage and delivery of quality services. That premise remains the same.
“It doesn’t matter how many lanes they add to the roads, it gets filled up with cars. That metaphor works well when you think about the networks and the network edge in this world.”
Brouckman reveals that it doesn’t matter how big the pipes are — or how many kilowatts or megawatts of capacity are put into the edge — it fills up because it can create a great user experience that sings to the demand for data, compute and intelligent compute.
“We are investing from an R&D and trials perspective in something we call the far edge, which right now seems to be ahead of its time, but we were way ahead of our time 10 years ago when we started. In four or five more years, I think we’ll see some interesting kinds of use case applications, which will not be instead of the edge but rather in addition to the edge.”
Pandemic observations
There are a few things Brouckman says he noticed in the earlier stages of the Covid-19 pandemic. He explains that for the first 30 to 60 days, EdgeConneX was “as busy as it ever had been.”
“We saw a tremendous amount of increase in connectivity and bandwidth demand coming into and through the data centres,” he says.
“As we reached the second 60 days up until now and beyond, we are seeing the need for more compute and more storage at the edge,” he adds.
EdgeConneX is expanding into six or seven edge markets — a couple of them will be new markets — and the company has four or five expansions of existing markets on the horizon.
“There will be some challenges, but the good news is that almost everybody worldwide now recognises that data centres are critical infrastructures and therefore we are able to operate and expand, adding capacity to deliver traditional servers to our customers.”
More M&A
When asked about whether the EdgeConneX acquisition could potentially inspire more deals of its kind across the sector, Brouckman says he believes that the data centre space is one where infrastructure money recognises the critical nature of the assets and is the right move long-term.
“These are long-term, capital-intensive strategic projects that we are designing, building, implementing and operating for our customers, which is a good match for infrastructure capital,” Brouckman begins to conclude.
“You see this in the public markets as well; Digital Realty has partnered with Brookfield on a deal in South America, Equinix has announced partnerships with GIC in certain regions.
“Seeing public companies partner with this kind of capital makes me think it is absolutely the right capital for private companies too,” he continues.
“I’m very pleased with EdgeConneX’ position in the market, the significant opportunity for future growth, and our new partnership with EQT to bring the next level of investment in the edge for our customers around the world.”
