How are Managed Services Multiples Trending Lately?
by Josh Anderson
CHICAGO, IL – Financing a data center is no easy task. And neither is the decision-making process that a lender must undertake when deciding whether and how to make a go of it. At CapRE’s Seventh Annual Chicago & Midwest Data Center Summit, we convened a panel of leading insiders from the regional capital markets arena to discuss this thought process, on a panel titled Capital Markets Takeaway: What Types of Debt and Equity Sources will Become More Active in 2018? Below we highlight some of the thoughts offered from the panelists in response to a question from the audience about how to help a bank understand what a data center is exactly.
Question: There is a lot of hesitance to loan on net-vacancy — when you’re already underwriting yourselves on a per kilowatt basis, but the bank isn’t really buying that. Do you think that will change?
Mario Calderone, Vice President – Real Estate, Server Farm Realty, LLC: There is capital available. Limited, but there may be some type of principal recourse available. Lower loan to value or loan to cost.
Dan Bryson, Executive Vice President, Finance, JLL Capital Markets: It all depends on the deal. If you’re going to get a speculative or legacy deal, if you’ve got a power shell, then you need to have all of the basics covered. You’ve got to have dual sources for power, you’ve got to have fiber. You’ve got to have the right location. You’ve got to have the right everything. And then if you’re going to try to finance a spec deal, then you’re going to have to dial it back to about 25% or 30% of cost.
Corey Welp, Managing Director, fifteenfortyseven Critical Systems Realty: I think that if you took 150 data center deals that have been financed, you’re going to find a very small group of companies that have been in that capital stack. And that list may be 15 or 20, right, but you’re going to see the same names over and over and over. There are a lot of club-syndicate-type of deals in that space.
Question: Can you provide some commentary on managed services multiples and how that’s trending recently?
Moderator Dave Spiewak, NextTier HD: One of the interesting developments or an interesting case-study to think about is QTS. This last quarter they came out and said, We’re doing hyperscale, and for a lot of our managed services business, we’re going to look for a partner to kind of sell that off. So it’s actually one of the questions that I had written down too – what sort of multiple do you pay for a business like that? I understand it’s lower, but how do you underwrite something like that?
Bryson: What kind of multiples? I think you’re probably the best-suited for the multiples on the managed services business, Mario, and you’re lending to the groups as well.
Joseph Junda, Managing Director, CIT: The teens. They’re selling for the teens. 11, 13, 14, I would guess. Depending on how big the platform is. Depending in who it is. Plus is that their core focus? I think that with QTS, they’re trying to figure out what business they are in. You can’t be everything to everybody. So they shed that and the business will probably go to a company that specializes. We’re all trying to specialize and be more efficient, and if you try to be everything to everybody, you can get yourself into trouble in a hurry. Managed services is a completely different world.
For more from Spiewak, Calderone, Junda, Bryson, and the rest of this panel, check out previous CapRE Insider Reports covering earlier remarks:
- Dan Bryson, JLL: Data Centers are Designated Assets, Even if Lenders Don’t Like It
- What Kind of Data Centers Are Most Attractive to Lenders?
- How Have Debt Markets Changed by Accepting Data Centers as an Asset Class?
- Which Data Center Products Command the Highest Multiples?
Banner Photo (L-R): Dave Spiewak, Next Tier HD & Mario Calderone, Vice President – Real Estate, Server Farm Realty, LLC