Saturday, July 22, 2017


Private equity investor funds UK data centres in new wave of advanced managed services investments



Brexit fails to halt data centre investments as operators enter a new phase of business evolution beyond pure colocation offerings.

Investment firm Palatine Private Equity has invested in UK-based data centre provider The Bunker, in what is the PE company’s fifth deal out of Palatine’s third fund.

The Bunker was founded in 1994 and offers services around cloud, colocation and hosting. The operator has also over the years built a knowledge around fintech and the wider financial services sectors.

It has two data centres in England, one in Ash, Kent, and the other in Newbury. Each data centre has a power capacity of just below 2.5MW, however, the sites have the capacity to be expanded by several MWs.

Palatine said in a statement that the current levels of sales activity within the business show a rate of growth that will continue with the company set “to benefit from market headwinds such as GDPR and an ever-greater demand for cyber security services”.

In parallel to the new investment and in conjunction with long term business succession planning both Peregrine Newton (CEO) and Andy Theodorou (COO), both co-founders of the business, have decided to step aside.

Consulting director Andy Hague has been named as the new Group CEO, whilst Phil Bindley (CTO) has been promoted into the role of Managing Director with the rest of the Senior Management Team remaining in their current roles.

Palatine was advised by BDO, Gateley Plc and RSM with due diligence provided by CIL, Marsh and The Berkeley Partnership. Debt facilities were provided by European Capital and Santander.

Speaking to Data Economy, BDO’s head of TMT M&A, Robin Brown, said: “When you talk to a lot of British or European [data centre providers] as well as small data centre operators they are unsure at the moment about what they should be doing with their businesses.

“Should they be focusing on just filling up their sites and getting a return from a colocation base; should they be moving into managed services; should they be moving to cybersecurity services; should they be buying or building more small data centres to have a regional play?

“What this investment by Palatine – private equity – into The Bunker is showing, is that there is investor support for data centres to invest in more advanced managed services and cybersecurity capabilities. Their proposition is offering a technical solution to customers that is greater than just colocation.

“The Bunker is designed to be ultra-secure and what they have done over the year is migrate the business from being just colocation services into managed hosting, disaster recovery, network services and dedicated cloud services. Part of the strategy of the business is to further move into cybersecurity services over time.”

With The Bunker based in the UK, uncertainty around Brexit failed to hinder any negotiations, with Brown playing down questions around private equity investors’ fears.

He said: “One of the interesting implications of some of the UK private equity funds is that the basis underpinning their investment in their funds is that their businesses are UK registered.

“Quite often when they make an investment in Europe it is still being done by a UK registered business. They will set up, even if it is a shell company or a small acquisition, that is still run from the UK, whether over the longer term, you see more and more private equity funds being less constrained by the requirements of a UK registered business is a question that is open, it does not have an answer yet.

“The Brexit effect has not been brought up as a significant impact on why they would or would not invest in the UK.”

Looking ahead, and with investors showing more interest in the data centre market beyond pure-play colocation, Brown also said the investment carried out by Palatine could spark a wave of private equity investments.

“The private equity I am talking to at the moment are specifically interested in investing in data centres that have made the migration towards managed services,” he said.

“Small data centres that are continuing to just do colocation are less attractive. Data centres that are moving into fields like cybersecurity, are worth more to an investor and an investor understands how they can make further acquisitions to grow the business and not be constrained by the footprint of the data centre itself.

“If they have services that are provided to clients that are in the data centre, they can then add additional services that they then can provide to those clients that do not rely solely on the data centre footprint. One example would be GDPR consulting services.”