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2 Big Data Center Acquisitions and What Investors Need to Know - Motley Fool

It's been an active time for MA in the data center business.

We recently learned that two of the remaining four data center REITs have agreed to be acquired. CyrusOne (NASDAQ:CONE) is being taken private and in this Fool Live video clip, recorded on Nov. 16, contributors Matt DiLallo and Matt Frankel, along with editors Deidre Woollard and Kayla Schorr, discuss why we're seeing so much interest in the data center space and why CyrusOne's acquirers were so interested. 

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Deidre Woollard: Yesterday was the biggest day ever in data center history because you had the top one and two biggest acquisitions ever in data centers happening on the same day for a total of $25 billion when you put the two deals together, so just a massive day and there were two other acquisitions that we'll talk about as well but I know that you've talked a lot about real estate, MA, and things like that over this past year. Did any of this surprise you?

Matt DiLallo: Not at all. There was rumors that CyrusOne particularly, had put itself up for sale. They had changed their CEO and it was back in September, Reuters (NYSE:TRI) reported that they are exploring their options and analysts had been saying that they looked really good. There was a lot of bidders interested in this one particular and I know Brookfield (NYSE:BAM), who we talked about a lot. They were also sniffing around this one. They ended up losing and I actually wouldn't be surprised if Brookfield put in another bid, it's how they operate. I really don't think that these deals might be done just because there's so much interest in them.

Matt Frankel: There are very few data center REITs left to acquire. It's fair to point out that there were six data center REITs at the beginning of 2021. You know how many there are now? Two, Equinix (NASDAQ:EQIX) and Digital Realty (NYSE:DLR). The smaller of the two is a $45 billion company. Apple (NASDAQ:AAPL) could acquire them or I can actually see Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) making a play for one of them as their big acquisition because it seems like a Buffett-type business for the 21st century, but there's not that much left to acquire there.

DiLallo: We're actually getting a new data center REIT, but not until 2023 because Switch (NYSE:SWCH) is making the switch and it's a company I really like. We're going to talk about it a little bit later on, but it's a very small data center operator. Its owners are founder-led, which is something we really like here at the Fool. There's more of it coming, but I think they could even be acquired too, with all the demand for these data centers.

Kayla Schorr: That's an interesting point because if we've got two left, that gets interesting. Cyrus, let's talk about the first one, which is CyrusOne, that's being taken private by KKR and Global Infrastructure Partners. Global Infrastructure Partners, is one of the biggies in the infrastructure fund world. This is a $15 billion deal, including the assumption of debt. There's over 50 data centers worldwide. It's definitely a big deal. Let me share my screen because I want to show a little bit about where they are located. Pretty nice distribution on their data centers. I believe they're U.S. only, but I like that they've got the country covered pretty well. Of course, they're in Northern Virginia because every data center company is in Northern Virginia. Not surprising to see them in Silicon Valley as well. I think Denver is becoming a surprising data center hub, Chicago as well. I'm seeing a lot of data center activities starting to center in the Midwest, which is interesting.

DiLallo: Actually, they have a great data center business they've been building it for years and that's one of the draws. This deal in my mind mirrors exactly what Blackstone Group (NYSE:BX) did a little bit ago when they acquired QTS Realty. It's all about this proliferation of data. They see just so much demand for data in the next few years as we go into the Cloud and streaming and all that. This gives these two private equity company a platform to grow. What they want to do is they want to pour capital into this business and expand them in the U.S. and overseas just to capture all this data. It's a very thematic approach. In essence like KKR, they're not really big in the real estate sector yet. I think they have $32 billion in real estate assets and Blackstone's like $200. But they're really mirroring a lot of what Blackstone has been doing with this thematic investing approach. They've launched a healthcare platform this year, net lease platform. They're really looking at what Blackstone is doing. Brookfield is another one. We have these big private equity players and they all are following the same blueprint. That's why there's only a couple of data center REITs out there. They're snapping up because they just see so much growth ahead for these companies.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Deidre Woollard owns shares of Apple. Kayla Schorr owns shares of Apple. Matthew DiLallo owns shares of Apple, Berkshire Hathaway (B shares), Brookfield Asset Management, CyrusOne, Digital Realty Trust, Equinix, and Switch and has the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. Matthew Frankel, CFP® owns shares of Apple, Berkshire Hathaway (B shares), and Digital Realty Trust and has the following options: short January 2022 $140 calls on Apple and short November 2021 $140 calls on Apple. The Motley Fool owns shares of and recommends Apple, Berkshire Hathaway (B shares), Brookfield Asset Management, CyrusOne, Digital Realty Trust, Equinix, and Switch. The Motley Fool recommends Brookfield Asset Management Inc. CL.A LV and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.