On September 4 2024, Blackstone, the world's largest alternative asset manager, announced its agreement to purchase the APAC region's largest data centre firm, AirTrunk, for $16.1bn (A$24bn) in a deal set to finalise in Q4 2024 or Q1 2025, depending on regulatory approval. Blackstone owns $55bn worth of assets in the data centre market, with its recent investment strategy in this market described as "aggressive" by the Financial Times.
Macquarie, AirTrunk's current largest investor, purchased its majority stake in the firm for $2.1bn (A$3bn) in 2020, hence, making nearly 8x returns should this deal finalise. This return figure reflects the surge in demand for cloud computing and data centres. AirTrunk, founded in Sydney during 2015, has become entrenched in the data centre market; boasting over 11 hyperscale data centres across the Asia Pacific region, with over 800MW of committed capacity to clients and enough land to add another 1GW to that total.
On the buy-side, Blackstone and co-investor Canada Pensions Plan Investment Board (CPPIB) agreed to purchase a majority stake in AirTrunk. Prior to this deal, Macquarie group held a 60% stake, the Public Sector Pension Investment Board (PSP Investments) owned 28%, while founder R.Khuda and key management figures at AirTrunk held 12%. While the key financials for this deal have not been published and AirTrunk is a private company, CPPIB announced that it had purchased a 12% stake in AirTrunk, and Blackstone would have acquired a large portion of the remaining 88% equity.
Cross-border mega-deals tend to attract regulatory scrutiny, and it is unlikely for this deal to be an exception. For this acquisition to finalise, the Australian Foreign Investment Review Board (FIRB) has to approve the deal upon review. Questions should be raised surrounding national security and data privacy, given that AirTrunk handles large amounts of sensitive data, and the economic impacts this deal could have on jobs and local competition.
Other regulators could even consider the potential geopolitical risks Blackstone's ownership of AirTrunk presents, given that AirTrunk operates in East Asian nations such as Japan, Malaysia, and Hong Kong.
In short, data privacy will be the focal point of this regulatory scrutiny. Though, Blackstone has successfully built a portfolio worth $55bn in data to date. Regardless of the outcome, regulatory reviews can cause substantial delays to any merger process. Blackstone will have to cooperate with regulators promptly if it intends to see this deal through in the coming months.
Comparable companies to AirTrunk include Equinix (EQIX), QTS Realty Trust, and CyrusOne, all of which are major operators in the data centre market. Each of these companies have been acquired/trading with EV/EBITDA multiples ranging from 20x to 25x in recent years. Blackstone itself acquired QTS Realty Trust in 2021 for $10bn at an EV/EBITDA multiple of around 23x. Though AirTrunk's financials are not public, given its current market position, this deal appears to follow the recent trends in valuation in the data centre sector.
Whilst these valuation multiples are historically high, asset managers are still willing to pay an expensive price for data centres, given the sector's potential in unlocking the next developments in artificial intelligence. With AirTrunk leading in the APAC region, it would be rational to expect continued growth in demand for cloud-based solutions, which are facilitated by data centres where AirTrunk thrives. Assuming regulators approve the deal, the more likely outcome of regulatory review, Blackstone should prize AirTrunk in its portfolio and look to enable further growth to try and match Macquarie's impressive returns.
Sources: MergerLinks, Blackstone, AirTrunk, Financial Times, Macquarie
Written by: Alexander Philp
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