Anexio’s Tony Pompliano on Data Center M&A: “Growing Goliaths” Are Own Worst Enemy
by Josh Anderson
ASHBURN, VA – Data center M&A activity is by far the most newsworthy (and disruptive) force in our sector right now. At the very least it’s becoming a centerpiece of insider discussions. So we recently connected with Tony Pompliano, CEO at Anexio, for his thought on all of this M&A activity, and how his firm is reacting to it.
“I see the industry in three buckets,” Pompliano begins. “I look at the large publicly traded REITs. They’re primarily landlords. They’re creating large scale infrastructure. Then I look at large system integraters, like HP, IBM, Dell, for example. Then, there are the hyperscale firms. Those three buckets are what I call the technology goliaths. They’re getting bigger and stronger as time goes on.
Data Center M&A: Growing Goliaths are Own Worst Enemy
Pompliano says that while there may be a belief in the industry that these growing goliaths are going to make it more difficult for smaller or mid-sized firms to compete, he actually believes that their getting larger is a hindrance to them. He says it adds to their Achilles’ heels, which is bureaucracy, an inability to be responsive, and the fact that it’s very difficult to roll out new offerings.
“They’re our competitors – and we’re competing with everyone one of them at some level,” Pompliano continues. “But small companies like us, we’re trying to bring scale, because scale is important, we’re just trying to take advantage of the opportunity. But if you’re a small size or mid-sized company, and you want to grow top line revenue, there are only four ways to do it.”
According to Pompliano, you can go out and get new business, which takes the longest amount of time. “The sales cycles in our industry is 6, 9, or 12 months,” he explains. “It’s also the most expensive in my opinion.”
“The second way to do it is to raise prices,” Pompliano lists. “That’s really difficult to do in a competitive market where there is technology being adopted that makes prices come down. Or you can add additional services, and I think that certainly everyone is trying to do that at some level. Or lastly, you can go and acquire companies.” Pompliano says that that’s the biggest way to move the needle.
Final Thoughts: Data Center M&A Come in Many Flavors
“If you can do that at a cost that is less expensive than the cost of getting new business, then it’s an attractive scenario,” Pompliano portends. “There is plenty of capital out there for the right combinations. There are a variety of ways to do that too – private equity investors, early stage firms, late stage firms. And what we’re trying to do frankly, is to look at those large technology goliaths, because it’s a very, very fragmented market below those guys.”
“Take any of those segments I mentioned before. 97% of the firms below those really names everyone knows employ less than 100 people a piece,” he says. “And they exist because, frankly, if you think about it, it doesn’t take much to be in the IT business. No offense to anyone who’s a sole practitioner or has a handful of people. But you only need one customer and bam, you’re in the IT business.”
Stay tuned for a follow-up article to this discussion with Pompliano, where he will dive deeper into specific M&As, and what his firm has done to capitalize on opportunities in the space.