Trends in Data Center Mergers and Acquisitions

Introduction

The data center industry has seen a notable uptick in mergers, acquisitions, and strategic partnerships. Driven by surging demand for digital infrastructure and the rapid expansion of cloud computing, investors and operators are turning to M&A as a route to accelerated growth. According to the Colliers 2024 Data Center Marketplace Report, the volume of data center deals is expected to remain robust. Law firms like DLA Piper and Baker McKenzie are increasingly advising on cross-border transactions that involve complex legal and regulatory considerations.

Market Drivers

Key drivers for data center M&A include the rising adoption of cloud services, increased enterprise outsourcing, and the rapid growth of 5G and IoT. Hyperscale operators often pursue acquisitions to gain immediate access to new markets, bypassing the lengthy process of constructing facilities from scratch. Private equity firms are also drawn to stable, long-term returns, often facilitated by multi-year colocation contracts with major enterprises.

Legal and Regulatory Hurdles

Cross-border deals can trigger foreign investment reviews, antitrust clearance, and data privacy scrutiny. For example, the Committee on Foreign Investment in the United States (CFIUS) may assess transactions involving sensitive infrastructure. In the EU, the General Data Protection Regulation (GDPR) adds another layer of complexity if personal data storage is part of the acquired assets. Law firms like Morgan Lewis guide clients through these processes, ensuring that the transaction structure and disclosures align with regulatory requirements.

Real Estate Due Diligence

Because data centers are capital-intensive, real estate considerations loom large. Investors must evaluate site ownership structures, lease agreements, power contracts, and expansion capacity. Hiccups—like insufficient utility contracts or unresolved zoning issues—can significantly reduce the value of an acquisition. Conducting environmental and structural audits is also crucial, especially if older facilities need upgrades to meet modern standards for security and cooling. Akerman emphasizes that robust property-related diligence can uncover hidden liabilities, from soil contamination to inadequate fire suppression systems.

Operational Integration

Once the deal is signed, integrating operations can be challenging. Disparate systems—like monitoring software, security protocols, and vendor relationships—must align to maintain consistent service levels. Acquirers often discover redundancies in staff or overlapping cloud platforms, which can complicate the post-merger synergy. Clear transition service agreements (TSAs) help define roles, timelines, and responsibilities as the organizations unite under a single operational model. Doing so ensures minimal service disruption for existing customers.

Financing and Valuation Trends

Valuations of data center assets often reflect both current lease commitments and long-term revenue potential. Some investors use capitalization rates (cap rates) akin to those in commercial real estate, while others value data centers more like technology companies, factoring in future capacity expansions and intellectual property considerations. REITs frequently play a role, given the tax advantages tied to real estate–focused investment vehicles. Debt financing can be structured with covenants that consider occupancy rates, power usage, and other facility metrics.

Conclusion

Data center M&A is likely to remain a powerful force, fueled by technological advancements, growing data demands, and the need for global footprints. However, each deal comes with its own set of challenges—ranging from complex regulatory approvals to operational integration hurdles. Thorough due diligence, careful structuring, and effective post-acquisition planning are pivotal for reaping the benefits of these strategic transactions. For more insights on data center deals, visit our sitemap or contact Imperial Data Center today.