As the cloud gains popularity among endusers, cloud providers are looking for opportunities to expand their business through data center acquisitions. Primarily, acquisitions have occurred in the colocation and wholesale industries, and even more so in the large carrier type data centers. Due to the technology infrastructure installed within the large carrier type data centers, the value of these facilities has rocketed, as in the case of Google buying the 111 8th Ave. data center in New York for $1.9 billion. With this said, cloud providers also are looking to expand their business by acquiring data centers in other markets.


Historically, there have been two data center markets with acquisition activity; wholesale and retail colocation. Recently, there has been an uptick in activity with cloud providers as they acquire data centers to support expanded service offerings.

While cloud providers sometimes do large deals with enterprise companies, they have mostly determined that the preferred cloud client is a midsize company without an IT department. Additionally, low latency is important as the enduser at a desk requires speed as well as support. This model is referred to as cache data centers. The typical model includes a primary and secondary very large data center located in a secure region with very good free cooling and low electrical cost. A cache data center is a smaller facility located close to a large population center to increase speed to the enduser. Online gaming often uses this structure.


Whether looking to sell a data center or buy a data center, the data center brokerage community can provide valuable advice on properties that are on the market, or are suitable for acquisitions. There are myriad resources they can provide, including data on demographics, market demand, and real estate listings. They can provide tours of facilities that are available for acquisition or list a data center for sale on the market.


The key to success is to understand that it’s not the appraisal of a data center for sale, it is the vision of how that data center can financially and technically perform. The technical consultant will develop concepts to expand the infrastructure to meet today’s market requirements. This typically includes some basic design criteria including concurrently maintainable 150 Watts/sq ft, and a scalable infrastructure. Developing a technical program that includes site plans, floor plans of the computer hardware, and support infrastructure creates a picture for both marketing and scope of upgrades required within the facility.

Another important feature of the technical program is working with the broker to identify competitors, and other items such as taxes and depreciation. This coupled with the technical program creates a holistic view of the acquisition.

Running concurrently with creating the technical program is risk identification within the infrastructure. As engineers survey the site, it is important to develop a risk assessment of existing conditions of the asset. The risk assessment looks at single points of failure and condition of equipment, but most importantly the life cycle of critical components. While chillers and generators have a 20- to 25-year life cycle, static UPS systems only have a 15-year life cycle, creating additional capital expenditure (CAPX) needs above the purchase price of the data center.


During a data center acquisition process there is usually some history based upon operating cost of the data center (OPEX). This information is usually provided by the seller. OPEX typically includes power cost, maintenance, personnel, property tax, etc. The biggest expense of the acquisition is the CAPX cost. Unexpected “gotcha’s” concerning infrastructure is one of the biggest risks of the acquisition.

CAPX components consist of:

• Construction estimate to bring the facility up to technical program requirements (150 W, etc.)

• 10 year replacement cost — roofing, life cycle of equipment, structural upgrades, etc.

• Branding cost including office build out, lobby, image, signage, etc.

Sale price + CAPX + OPEX = Initial and long term investment

Upon developing a firm scope of initial and long term investment costs, the real estate advisor will be able to assist in the revenue side the acquisition. This will include analyses of absorption rates (how fast a data center will lease up), pricing models, internal return on revenue (IRR), and finally the EBITA (earnings before the deduction of interest, tax, and amortization expenses).

In order to develop a good pro forma, the technical program, CAPX and OPEX must be created to generate an accurate forecast of investment expenses. In the next column we will examine the creation of the data center pro forma.