This document summarizes a presentation given by Steve Wallage of BroadGroup Consulting on attracting investors for colocation providers. The presentation covers how investors assess colocation providers, different investor strategies, and case studies. It discusses important factors for investors such as the management team, competitive positioning, revenue/margin forecasts, cloud strategies, growth opportunities, and potential investor exits. Key success factors identified include experienced leadership, defendable competitive advantages, realistic financial projections backed by evidence, understanding customers' cloud needs, and viable paths for future growth and acquisition.
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Attracting Data Center Investors: Key Insights
1. Digital ICC: Attracting Investors
What Colocation Providers Need to Know
Confidential Property of Schneider Electric
March 14, 2018
Greg Jones, Schneider Electric
Steve Wallage, BroadGroup Consulting
2. Page 2Confidential Property of Schneider Electric |
What is the Digital ICC?
• International Colocation Club is our annual live annual event
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globe to hear from industry experts, analysts, and peers
insights to maximize their business success
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3. Page 3Confidential Property of Schneider Electric |
Attracting Investors: What Colocation Providers Need to Know
Today’s presentation will cover
How investors are assessing colocation providers
Different types of investor strategy and positioning
Actual case studies
Steve Wallage
Managing Director
Greg Jones
Vice President, Strategy, Cloud &
Service Providers segment
4. HOW TO SUCCEED IN DATA CENTERS
- AND GET INVESTOR SUPPORT
STEVE WALLAGE
MANAGING DIRECTOR, BROADGROUP CONSULTING
steve.wallage@broad-group.com
Information in slides comprises data and opinions from BroadGroup Consulting
5. Why BroadGroup Consulting
• Internal databases and tracking of markets from 2002
• Co-location, hosting, IaaS
• Research reports – quarterly tracker, annual analyses
• DCE8 – Western European analysis, June 2018
• Strategic consulting - focus across Europe, Africa and Asia
• Work for investment agencies, operators/providers, vendors, investors, users
• Conducted over 30 commercial due diligence projects in
sector
6. Is there sustainable demand for data
centers?
Will this specific business/financial model
work in the face of increasing competition?
Two key investor questions
7.
8.
9. And this demand is accelerating globally – supported by government initiatives
10. But will this particular investment work - typical commercial due diligence breadth
1. Broader market issues and opportunities/threats/long-term evolution
2. Specific analysis of local market, supply/demand, addressable market
3. Specific analysis business plan
- Market positioning, offerings, execution, pricing, channels etc
4. Financial plans
- Overview costs, fill rate, pricing, P&L
5. Technical plans
- High-level analysis
6. Management
7. Customer and prospect analysis – typically including 15-30 detailed interviews
8. Strategy and recommendations on future plans
9. Other aspects including possible exit
Often alongside:
Financial due diligence
Legal due diligence
Technical due diligence
11. Looking at some key aspects and our experience with real projects
• People
• Competitive positioning
• Revenue and margin forecasts
• Getting cloud right
• Future opportunities, growth and potential investor exit
13. - A serial entrepreneur who has done it before
- An experienced chairperson from outside the business
- Specific vertical market expertise that is key to business
People – good examples from previous investment projects
14. - ‘Distracted’ other businesses/ventures
- Short-term contracts/unclear commitment
- Skills to build business up to today but not the skills needed from
2019 and beyond
People – poor examples from previous investment projects
15. Competitive positioning
• Does the current and planned competitive positioning make sense?
• Is it backed up by evidence from financials?
• Is it backed up by industry trends/evidence other markets?
• Is it backed up by user interviews?
• Is it defendable and sustainable?
16. - Can you match the growing competition such as Equinix?
- Can you make the expected returns given the pricing, terms and
expectations of the hyperscale cloud players?
- Can you meet their cost expectations…..
Example competitive positioning – focus hyperscale cloud
17.
18. - (Despite our initial concerns) Product roadmap based on
customer requirements as so close to key customers
- Strong understanding of the gaming market with excellent
relationships and partnerships in the sector
- Regional (second city) approach and key relationships local IT
players, avoiding direct competition major players
Competitive positioning – good examples from previous investment projects
19. - Claims of relationships and Letters of Intent from Middle Eastern
customers, with no proven agreements or track record
- Claiming to have unique approach with no evidence of customer
acceptance of approach
- Looking to cut costs by using unproven suppliers
Competitive positioning – poor examples from previous investment projects
20. Revenue and margin forecasts
• Forecasts are often treated sceptically – looking for hard evidence and
proven track record
• Monthly management accounts and detailed customer pipeline
assessment
• Often see claimed revenue growth and margins much higher than industry
average/competitors – is this justifiable and sustainable?
• Often only one forecast with little/no contingency – investors like to see
different scenarios
21. “Our investors only care on four things at every management
meeting – deals signed and their terms/length, pricing and
covenants”
Co-location player
Revenue and margin forecasts – investor interest
22. - Higher margins achieved due to under-developed market/limited
competition
- Higher margins due to concentration of telcos/cloud players at
their data center
- Higher revenue growth forecasts supported by user interviews
showing planned customer growth
Revenue and margin forecasts – good examples from previous investment projects
23. - Sudden growth in new cloud business line despite no track record
or expertise in the area
- Revenue growth to come from M&A despite lack of identified
targets or track record of execution
- High current EBITDA margin due to unsustainable factor – in this
case, not paying market rate to property owner
Revenue and margin forecasts – poor examples from previous investment projects
24. Getting cloud right
• Many different potential approaches (see success stories) but it is key to data center
success – supporting customers in their cloud strategies
• Key is that it is providing value to customers, and is sustainable and defendable
• Differentiation can come from specialist skills and professional services
• Success comes from understanding customers – why they use the data center? How can
they be better supported? And this is a key area in customer interviews in the due
diligence
25. - Automated services that were easy to deploy with quick payback
- Specific services such as DRaaS and Security As A Service that
complement existing services
- Specific vertical market offering – example was in insurance
where had to overcome industry concerns and incorporate
specific regulatory requirements
Getting cloud right – good examples from previous investment projects
26. - Trying to use co-location salespeople to also sell cloud services
despite no experience in the sector
- Competing directly against public cloud offerings
- Offering managed hosting and cloud solutions with limited
experience and relationships
Getting cloud right – poor examples from previous investment projects
27. Future opportunities, growth and potential investor exit
Now that they have our money, we are going to watch very carefully what they do with it
Private equity investor
28. - Expanding offerings – and number of services that can be sold –
to a core and loyal group of customers
- Being a first mover in an emerging market that larger players are
likely to want to enter in the next 2-3 years
- Developing differentiated offering in new sector such as edge
Future opportunities, growth and potential investor exit – good examples from previous investment
projects
29. • Microsoft developing ‘hub and spoke’ DC strategy, and Azure IoT
Edge
• AWS Edge Network Locations in Asia
Chennai, India (2); Hong Kong, China (3); Kuala Lumpur, Malaysia; Manila, the Philippines; Melbourne, Australia; Mumbai, India
(2); New Delhi, India; Osaka, Japan; Perth, Australia; Seoul, Korea (4); Singapore (2); Sydney, Australia; Taipei, Taiwan; Tokyo,
Japan (7)
• EdgeConnex estimates that response time improves 50-85% for
users who bypass the public Internet, opting for direct cloud access
via Megaport from an EdgeConneX Edge Data Center
And the hyperscale players also now want to be at the edge….
30. - The ‘build it and they will come’ approach
- Expanding in a new country where the provider has very little
experience and limited relationships
- Assuming a trade buyer will come in at some point….
Future opportunities, growth and potential investor exit – poor examples from
previous investment projects
31. “The industry will largely consolidate around 3-5 global players”
David Ruberg, December 2017
How many trade buyers will there be?
32. - Many investors ‘struggle’ with data centers – their background is often real
estate where there are detailed data points and comparative numbers – the
investor often needs educating
- Does the investor know the sector? What have they done with previous
investments?
- What is risk profile and focus of the investment company (fund)?
- What is the duration/timeframe of the investor/fund?
- What is their approach/involvement with investments?
Final thought – the right type of investor
33. HOW TO SUCCEED IN DATA CENTERS
- AND GET INVESTOR SUPPORT
STEVE WALLAGE
MANAGING DIRECTOR, BROADGROUP CONSULTING
steve.wallage@broad-group.com
Information in slides comprises data and opinions from BroadGroup Consulting
Editor's Notes
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Welcome to the Digital International Colocation Club Webcast: Attracting Investors. I am your host, Greg Jones, VP Strategy for the Cloud & Service Provider segment at Schneider Electric. Before I introduce today’s speaker, I wanted to take a quick minute to introduce to our new Digital ICC. Many of you may already be familiar with our event, the International Colocation Club. We have hosted this exclusive event for five years which is designed to bring together providers for peer-to-peer engagement and exchange with each other and industry experts.
Last year we welcomed more than 50 colocation providers for 20 countries to our event. Past presenters include leading analysts like Gartner and 451 Research, global colocation providers such as Digital Realty and Interxion, and industry experts from CBRE and DH Capital.
We are now extending the benefits of the International Colocation Club, through our Digital ICC community. In addition to quarterly webinars, we will be sharing insights in a regular newsletter, and through digital content. You can find a great wealth of insights through our blog and there’s more to come.
Thank you for joining us today and as part of the Digital ICC community.
With more than $18 billion in M&A activity in the first half of last year alone, the colocation industry is riding the bubble of rapid growth. Colocation data center providers are being evaluated by a wide range of investors, with varying experience and perspectives. Understanding the evaluation criteria is a critical competency for attracting the right type of investor and financial commitment for your colocation business and this is why we have invited today’s speaker to present.
Steve Wallage Steve Wallage is Managing Director of BroadGroup Consulting. Steve brings 25 years of industry experience, holding senior roles at Gartner Group, IDC, CGI and IBM before joining BroadGroup 10 years ago. In his responsibilities at BroadGroup Steve has led many due diligence projects for investors evaluating colocation companies.
After attending today’s presentation you will walk away with a greater understanding of how to not only attract investment, but what are the right type of investors to propel their business growth
Thank you Steve for joining us, I turn it over to you.
FYI – Full bio
Steve Wallage is Managing Director of BroadGroup Consulting.
Within this role, Steve leads consulting within BroadGroup. With over ten years at BroadGroup focused on the data centre market, he is very well-known within the industry and has worked with many of the leading operators, vendors, investors and others in the space.
Steve undertakes many strategic consulting projects within the data centre sector, as well as telecoms and cloud. For investors, as well as being a strategic advisor to many of the key investors in the sector, he has conducted over 30 commercial due diligence exercises in this market.
He has over 25 years’ experience in the telecoms, IT and data centre markets globally, including senior roles with Gartner Group, IDC, CGI and IBM.
Steve is a regular presenter at major industry events and regular contributor to media covering the sector. He has also regularly appeared as a sector expert on business TV.