APAC-focused data center M&A has been booming since 2019, as technology companies race to undergo digital transformation. The coronavirus (COVID-19) pandemic intensified transformation activity, supercharging demand for hyperscale data centers across the region.
However, challenges are emerging in the form of increasing regulatory restrictions that are being put in place to address environmental and energy concerns.
While 2022 is unlikely to surpass 2021 in terms of deal volume or value, there are a number of deals in the pipeline, including ongoing indicative bids for two US-listed Chinese data center operators: VNET [NASDAQ:VNET] and Chindata [NASDAQ:CD]. If finalised, these would amount to around USD 5bn.
Although deal volume in China has fallen, possibly as a result of Beijing’s policy in July 2021 to build “green data centers”, APAC data center deal volume this year should at least match last year’s thanks to a rise in the number of deals in Australia, Japan, Indonesia and South Korea.
Nothing ventured, nothing gained
Aside from Singapore, which in 2019 imposed a moratorium on the construction of new data centers because of environmental and energy-related fears, investors are increasingly active in the Southeast Asian data center market. At the forefront in the region is Indonesia, which has seen four data center deals in the year to date (YTD), compared with only three in the previous decade, according to Dealogic.
Interestingly, joint ventures (JVs) appear to be on the rise. Between 2018 and May 2021, only seven companies were reported to be entering JV partnerships, with a headline investment value of USD 2.6bn, according to Mergermarket intelligence. But from June to December last year, there were 17 mentions of partnerships being formed, with a headline investment value of USD 12.1bn. In 2022 YTD, at least 19 companies have formed JVs involving some form of data center investment, and together these are worth around USD 3.4bn, according to Dealogic.
Last month, the CEO of Philippines-based fiber internet service provider Converge ICT [PSE:CNVRG], which is involved in a JV, said such deal structures are the best way for foreign data center players to enter the country given restrictions on real-estate ownership.
Watch this (data) space
In line with the JV trend, Meralco Industrial Engineering Services Corp (MIESCOR), a subsidiary of the Philippines’ largest power distributor, Manila Electric Co (Meralco), has said it may explore a JV with a data center operator.
Meanwhile, Indonesia’s state-owned telecommunications giant, Telkom Indonesia [IDX:TLKM], is weighing up the sale of a stake in its data center operations, which could be worth at least USD 1bn, a newswire reported. President director Ririek Adriansyah says the unit could be worth 25x EBITDA.
This represents a premium to previous APAC data center M&A multiples. According to Dealogic data, APAC data center deals have been agreed at a median of 19.8x EV/EBITDA in recent years although there is a wide valuation disparity across different jurisdictions.
Footnote: Data centers are infrastructure facilities for hosting computing networks and data storage. These fall under the telecommunications, computer hardware and services industry classifications.
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