Investor Returns. What do long-term outlooks have in store?
As the data centre market consolidation continues at full speed, recent changes in the dynamics of the deals are opening new revenue streams. In this CFO special, we find out what the opportunities are.
Privately held SafeHost is one of Switzerland’s largest colocation companies with the ability to scale up to 56MW across its three national facilities currently serving over 140 customers.
Founded in 2000, it wasn’t until two years later when the business started to operate. Geneva registered, the company is owned by the directors of the company and an independent investment group with an estimated net worth of $2.5bn.
As Data Economy lands in Zurich for this year’s Finvest Summit, João Marques Lima speaks to SafeHost’s CFO Frederic Moeller about the operator’s plans for expansion, the market direction and what the best bets for investors in the data centre world are today.
What are the biggest trends in the European marketplace?
The same buzzwords and themes of yesteryear will likely continue to trend for the foreseeable future.
Across the industry we will see transaction multiples remaining elevated with some continuing market-driven operator consolidation competing with interest from sovereign wealth and infrastructure funds.
There continues to be a trend of increased competitiveness in the European marketplace with a potential race to the bottom on pricing in the FLAP – Frankfurt, London, Amsterdam and Paris – markets. We believe strong cloud/hyperscale demand will continue to outstrip available supply in smaller non-FLAP markets. Given some of the recent multiples and a lack of existing accretive investment options, growth favours greenfield
developments and build-to suits rather than acquisitions. Up until fairly recently a laggard in the cloud/hyperscale take-up, Switzerland is now also benefitting from a strong increase in this demand – and we should see a continuation of the construction boom for the next few years.
Sustainability continues its inevitable rise to the top of the agenda. If estimates are correct and the Internet grows to account for 10% of the world’s energy use by the end of the decade, we, as an industry, will come under far greater scrutiny. There is already a growing shift to stronger regulation, and we must continue to proactively engage and prepare ourselves and our customers for that.
What would you point out as the best bets for good investor returns
in the next 12 to 24 months?
Transaction multiples are elevated and best suited to those with long- term outlooks. We would recommend investors look for agile operators growing organically and with strong, long-term customer relationships. As the European cloud/hyperscale market matures, we may also see a customer-lead consolidation around a reduced group of core developers/operators.
Geographically the Nordic market, with its competitive operating costs, remains an interesting opportunity, yet the attractiveness of the sustainability aspect of their business model has the potential to diminish as the ‘hidden’ environmental cost of delivering that data to mainland metropolitan areas remains high.
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How would you describe Safe Host’s funding model and at what stage is the company at?
With new equity partners coming onboard during the course of last year, we are scaling our business rapidly.
As we continue our growth trajectory, we are working hard to retain the core entrepreneurial spirit and agility that has driven our success and made us popular with our customers.
We have a close and stable working relationship with our Swiss banking partners and debt providers, who have been following us for more than a decade. In tandem with a few developing partnerships with new international financial institutions, we look forward to continuing to evolve our core relationships. We are fortunate to have a number of different capital options available to us, a strong AAA credit-rated customer-base with long-term contracts, and freehold-ownership of all our assets. It is important for us to continue to fully leverage our Swiss base and benefit from this unique position with its advantageous cost of capital.
How much capital has Safe Host raised on top of the $450m by the end of Q2 2019 (according to sources) and what has been the deployment strategy for that capital?
We have invested heavily in our domestic market and we are in a good position there. By some regards, we could now be the largest carrier-neutral operator in Switzerland by capacity, and we will continue to make prudent and well-planned investments on our home ground. By the end of 2020, over 30MW will be fully deployed of which 85% is under long-term contract.
We also have the short-term capacity to organically scale this considerably. In addition, our improved access to capital permits us to move ahead in lock step with our customers’ requirements on other opportunities abroad.
Will you be going out to market looking for more funding in the next 12 to 24 months?
Yes, this is a key part of our growth strategy and we are currently engaging in that process.
What are the expansion plans for Safe Host, including outside of Switzerland?
Our expansion is being led by customer-driven demand both in our domestic market and in the rest of Europe. We have a proven delivery model that our customers appear happy with and we will continue to evolve our offerings in the coming years.
What is the long-term vision for the business?
Safe Host will continue to grow in its local market, either with new partners or organically. We are proud of our Swiss heritage and the unique position this affords us. We will seek to leverage these strengths and core values as we build a pan-European platform.
As Safe Host grows into these new markets, it is an integral part of our vision that we continue to focus and lead in sustainable development.
Lastly, how do you see the role of the CFO changing in the digital age?
One regularly reads that there has been a rapid evolution in the role of the CFO in recent years. This is absolutely true and there are probably a dozen different answers as to why. To succeed as a finance leader in the digital age we must be able to work cross-functionally and strategically across the organization. There is a growing requirement to meet the increasingly complex and diverging needs of stakeholders, while taking and influencing decisions across numerous aspects of the business. This is well beyond our historic remit.
As a CFO of a capital-intensive data centre operator, we oversee simultaneous investments worth hundreds of millions of dollars. In this regard, we are faced more and more with the need to finely balance the naturally risk-averse nature of investors and lenders alongside the customer’s demands for agility, immediate execution and rapid availability.
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