451 Research has revealed new perspectives on the European multi-tenant data center (MTDC) market, which is undergoing a complete transformation. 451 Research analysts believe data regulation requirements, increasing demand for high-quality data center space, latency concerns, and a need to differentiate – with footprint, connectivity or services – will drive acquisition activity in this space in the near future.
According to 451 Research, this activity is likely to create new divisions between regional, international and pan-European wholesale and colocation providers, leading smaller players to focus more on services and areas of core competency to compete.
Consolidation is not restricted to MTDC operators. 451 Research expects M&A activity to also focus on service portfolios, skill sets, and network and cloud infrastructure as companies move into new countries and offer higher-value services.
Earlier this year, pan-European provider TelecityGroup announced its intention to purchase Interxion as analyzed here. The £1.44bn deal would be one of the largest ever undertaken in the European MTDC market. However, last week Equinix announced it might interrupt that deal as it is in talks with TelecityGroup about a possible takeover. If an acquisition is announced, it would be worth even more than the Telecity/Interxion deal.
451 Research estimates there are 27m square feet of operational data center space in Europe. Of that, Equinix claims 5.33%, TelecityGroup 3.7% and Interxion 3.5%. If Equinix were to acquire TelecityGroup, the new company would have a 9% market share across Europe, while a combined Telecity/Interxion would have 7% market share by operational square foot.
Furthermore, NTT recently announced its intention to purchase German wholesale provider e-shelter in a deal that would provide it with a strategic data center footprint in Frankfurt, Vienna, Zurich and Berlin. These deals alone will change markets not only in London and Germany but also other cities across Europe.
451 Research’s European Services channel predicts this is only the start of M&A activity in the European market.
451 Research projects the global colocation market’s annualized revenue to reach US$36bn by 2017, with an additional 7.4m square feet coming online by the close of 2017. Today, there are 3,796 data centers operated by 1,094 companies in the 451 Datacenter KnowledgeBase, which tracks more than 100 data points and metrics for data center operators around the world. Of these, just over 42% (about 1,616 data centers) are in Europe.
A majority of Europe’s markets are still served by regional providers, which offer local support and skills for each country or city but cannot compete for global reach and scale with larger providers entering their territory.
451 analysts predict one outcome of consolidation will be a new emphasis on emerging locations including Stockholm, Vienna, Madrid and Milan. Research indicates better economies of scale for those providers that do merge or acquire, the benefits of which could be passed down in the form of price reductions over time.
“Our analysis suggests that MTDC providers in Europe will become more cautious bringing supply to market – in some cases, these providers may choose to expand in partner colocation facilities where cloud or other nodes exist,” said Penny Jones, Senior Analyst – European Services, 451 Research. "We do not, however, expect to see huge revisions in build plans until 2016. Overall, the industry needs to be careful that such M&A activity – or expectations around it – does not lead to data center stocks becoming overvalued. A cautious approach will need to be taken to ensure key company stock is not put at risk."