Digital infrastructure: 2020 deal flow and outlook sneak peek
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InfrastructureMarket UpdateAhead of the first Digital Infrastructure Virtual Summit this week, 27-28 January, inspiratia shares some thoughts to consider
The year 2020 was defined by a lot of things, uncertainty being high on the list, but it without a doubt accelerated the maturity of the digital sector as an infrastructure asset. As go-to sectors took a hit or re-strategised in the background of a global crisis, the digital sector was pushed to the forefront with performance in closed deals across broadband, data centres and Infratech reflecting strong demand for digital infrastructure.
To give an early look at the scale of demand and what to expect for 2021, we have prepared a snippet of what inspiratia's data indicate. The full data will be presented on Wednesday 27 January [2021], during the opening of the Digital Infrastructure Virtual Summit 2021.
Digital assets tracked on inspiratia's dataLive reached another annual peak in disclosed deal volume, reaching US$50.7 billion (£37.1bn €41.7bn) in deals closed in 2020.
A few landmark deals such as the US$14 billion (£10.8bn €12.1bn) Zayo fibre deal back in March [2020] have helped boost the total for 2020. But there is undoubtedly a trend of growing deal values and strong demand across digital sectors, particularly demonstrated in the rate of acquisitions taking place globally.
As seen below, the total M&A volume of US$31.1 billion (£22.7bn €25.6bn) in 2020 exceeded 2019's final total.
Broadband
2020 defined broadband as an essential utility, with demand in M&A and greenfield projects remaining strong. Fund managers and traditional lenders stepped into the sector – some for the very first time– due to its growth and long-term appeal due to its essential everyday profile asset and its resilience.
Broadband has seen its demand growing consistently in the past five years and is expected to maintain its lead this year based on its historical performance.
An expected trend in 2021 are funds becoming the leading players in the sector. For instance, DIF Capital Partners via its DIF Core Infrastructure Fund (CIF) II bagged the most broadband transactions in 2020. Back in November [2020], DIF shared its strategy of targeting low profile transactions targeting companies and platforms that have significant potential to grow their footprint especially in rural areas that make more economical sense for the private sector to develop.
In that same breath, we will likely see more traditional funds like DIF CIF II make bolder moves
Data centres
Conversely, data centres started the year slow with a single deal in Q1 but managed to build momentum throughout the year, especially in greenfield where it ended the year with five closed deals in Q4.
The Covid-19 pandemic saw the business and personal aspects of people's lives digitalised. Accessible and faster broadband will continue to power this trend, but 2021 will likely see data centre deal count recover and grow at a rate that matches the pace of broadband growth. It also has carved out itself an essential role in traditional infrastructure to store critical data for all sectors.
Infratech
The industry is just scratching the surface for the opportunities in smart cities and Infratech.
Equity is going to continue playing a major role in the development of this sector, to build up platforms as well as a better understanding of the sector's unique and niche placement in infrastructure.
Deals that made it to close, like Whitehelm Capital's all equity US$103 million (£80m €86.6m) acquisition of smart city and internet of things (IoT) specialist Connexin in September [2020] are still rare, so it will still take a long while to reach traditional status. For now, the industry will be paying close attention to first movers and the path they make for the sector.
More of these developments in digital infrastructure will be explored in detail in inspiratia's first virtual event of 2021, the Digital Infrastructure Virtual Conference, on the 27 and 28 January. Learn more on the event and how to register here.
