The financial and technology media were awash with stories in early September about the competition to acquire one of the largest hyperscale data centre businesses in the Asia-Pacific (APAC) region – the Sydney-headquartered AirTrunk.
The AirTrunk sale first came to light in a Bloomberg article in January¹, in which it was revealed that Macquarie Asset Management and the Public Sector Pension Investment Board (PSP) were seeking to dispose of their 88% stake in the company.
The conclusion of the deal was confirmed on 4 September, with Blackstone revealing that funds managed by Blackstone Real Estate Partners, Blackstone Infrastructure Partners, Blackstone Tactical Opportunities, and Blackstone’s private equity strategy for individual investors, along with the Canada Pension Plan Investment Board (CPP Investments), were to acquire AirTrunk in a transaction valued at AUD 24 billion (USD 16.1 billion)².
A previous report by Reuters said Blackstone and CPP Investments beat a rival offer from a consortium led by IFM Investor, that included DigitalBridge, GIP, Mubadala's MGX and Silver Lake³, with more than 10 banks participating in the winner’s loan syndicate, including Credit Agricole, Deutsche Bank, Morgan Stanley and Japan's MUFG, according to Reuters sources.⁴
Deal signals changing sentiment
The deal is significant in a number of respects. Firstly, it takes Blackstone – already a leading data centre investor – to the front rank of data centre owners. In a press release, Blackstone said that prior to the deal its portfolio consisted of USD 55 billion of data centres, including facilities under construction, along with more than USD 70 billion in prospective pipeline development.
This is also the largest data centre M&A deal transacted to date – a record previously held by KKR and Global Infrastructure Partners with their USD 15 billion CyrusOne acquisition in 2021, according to Data Centre Dynamics.⁵
The competition for data centre assets, and the significant valuations attached to these deals, is being driven in large part by exponential growth in artificial intelligence applications and the resulting need for much greater cloud capacity.
It’s also one of the largest private M&A transactions of any kind to be transacted in Australia in the past five years, and is at the the crest of a wave of smaller deals coming through, which suggest the tide is turning in APAC deal-making activity.
More modest data centre acquisitions are also coming to market in Australia, and across the wider APAC region deals are coming through in the healthcare, education and pharmaceutical sectors, as well as for a number of financial advisory companies.
APAC W&I submissions up
We are seeing an increase in submissions for deals across many business sectors in APAC. Indeed, last month was one of the busiest for APAC W&I business, admittedly off the back of more subdued activity in preceding months, but with submissions in the year-to-date up from both last year and the preceding one.
In addition to an increase in W&I submissions, the time taken to sign deals and bind coverage has gone down, suggesting that the market is getting back to some measure of normality.
We’ve also observed a shift in recent years in the types of acquirors who are purchasing coverage for deals. While PE investors have been using the W&I product for some years, we’re seeing continued growth in purchasing by corporates and, in Australia, a small number of super funds who are making direct investments and taking advantage of coverage options in the W&I market.
Cautious optimism for a return to growth
The uncertainty that has overshadowed the private M&A market in recent years is receding. Inflation appears to be coming under control, with the Reserve Bank of Australia suggesting the rate for July will be 3.5%.⁶ This is raising expectations that interest rates will come down, reducing the cost of capital and giving private equity investors more confidence that they can expect a more predictable M&A environment.
Regulatory activity may be something of a brake on renewed M&A activity, however, with the Australian Securities and Investments Commission pledging to step up scrutiny of private market transactions.⁷
And following regulatory changes that brought data centres, among other business sectors, within the scope of national critical infrastructure, and therefore subject to greater scrutiny by Australia’s Foreign Investment Review Board,⁸ the Australian Treasury has announced it will be further strengthening the regulatory framework for foreign investments,⁹ putting a regulatory spotlight on deals in future.
We are optimistic that a steady pipeline of deals in Australia and the wider APAC region is coming, that will drive a greater flow of submissions to the W&I market.
¹ Baigorri, Manuel and Tan, Gillian. “Macquarie Said to Be Preparing for Sale of $8 Billion AirTrunk.” Bloomberg, 17 January 2024
² “Blackstone Announces Agreement to Acquire AirTrunk in a A$24B Transaction.” Blackstone, 4 September 2024
³ Wu, Kane and Rajan, Gnaneshwar. “Blackstone-led consortium nears $13.5 bln deal to acquire AirTrunk, source says.” Reuters, 2 September 2024
⁴ Wu, Kane, Murdoch, Scott and Jose, Renju. “Blackstone seeks A$5.5 bln loan for AirTrunk acquisition, sources say.” Reuters, 5 September 2024
⁵ Swinhoe, Dan. “Blackstone and CPP to acquire APAC data center firm AirTrunk for AU$24bn”; “Biggest data center acquisitions: 13 billion-dollar data center deals.” Data Center Dynamics, 4 September 2024
⁶ Inflation Overview | Reserve Bank of Australia
⁷ “ASIC expands strategic priorities for coming 12 months.” Australian Securities and Investments Commission, 22 August 2024
⁸ “Critical infrastructure changes expand the FIRB rules.” MinterEllison, 20 December 2021
⁹ “Reforms to strengthen Australia’s foreign investment framework.” Department of the Treasury – The Hon Dr Jim Chalmers MP, 1 May 2024
