Jack Funchion Talks DuPont Fabros + Digital Realty Merger: Why Now?
by Josh Anderson
CAMBRIDGE, MA — We’ve heard from coast to coast the 2017 was a banner year in data center transactions, and nowhere was that more clear than in the M&A arena. The largest of which was Digital Realty’s purchase of DuPont Fabros. Analysis about M&A activity of a staple at any CapRE event, but at our New England Data Center Summit, we convened a panel of industry insiderst that included representatives from some of the most active firms, including Jack Funchion of the Enterprise Sector at Digital Realty.
“Both companies [Digital Realty and DuPont Fabros] have historically gone head to head for many years,” said moderator Miles Loo, Global Lead, Valuation & Advisory, Data Center Consulting Group, Newmark Knight Frank. “Both companies have similar business models and target similar companies. For years there was significant speculation that the companies would come together. So Jack, why now?”
“I think that question would be better answered by our CEO and CFO but basically, why now?” he asked the room. “Because the price was right. And as much as the desire to acquire operating properties was a part of the deal, also a key part of the Dupont Fabros deal was the desire to acquire land. The biggest problem for Digital Realty and for many of our competitors on many markets is that we can’t build fast enough. By buying Dupont Fabros, we acquired land that was ready to build on as well as some projects that were under development. That was a key factor.”
Next, Loo asked him if he had any advice or insight as to how to underwrite these deals when you know a client could up and leave at anytime. “Obviously we don’t like to discuss who our customers are, but we are required as a public company to discuss the larger ones,” he prefaced. “If you go back a few years, you’ll see that revenue from Facebook has grown substantially over that time. The fear is that Facebook will build all of their own data centers and leave their leased facilities they have with people like us.”
This fear, says Funchion, is misplaced, because Facebook can’t build fast enough to meet their ever increasing demand. “As they add more features, as they add more users, and as their users engage more, their requirement for storage and compute just grows exponentially year after year after year,” he explains. “They can’t build fast enough to keep up. They’ve been building their own data centers and putting them online but they have not been exiting leased data centers. You know, the stickiest real estate tenants are data center customers. They’re sticky. It’s expensive, it’s risky, it’s very complex to move a data center. So once we’ve got ‘em, we’ve got ‘em.”
Check out previous CapRE Insider Reports offering exclusive analysis on M&A activity:
- CAMBRIDGE: Why Did Equinix Want Verizon’s Pair of Data Centers So Bad? and Will We See More Data Center Consolidation? Who Will Be Next? Insiders from Northern Investment Partners, JLL, Iron Mountain Offer Analysis
- SEATTLE: High Volume of M&A was Direct Reason for 2017 Leasing Slump in Pacific Northwest – JLL’s Conan Lee
- DALLAS: JLL’s Bo Bond Shares Data Center Trends at Dallas Summit: Updates on the Cloud, Absorption, M&A, Financial Sector & More
- ASHBURN: Large M&A Activity Means There’s Room for Small Firms, says Tony Pompliano, Anexio