Investors readying for a data centre gold rush

It's paving the way for the next great UK company.

The 1800s were all about mining – gold and iron. The 1900s were all about drilling –  oil and natural gas. The 2000s are again going to be focused on mining, but of a different kind – data.

 Everything in the modern world from humans to machines is a data factory. Global internet traffic will pass one zettabyte for the first time this year, after increasing fivefold in the last five years. Cisco, the networking company that supplies much of the world’s internet infrastructure, said that the total amount of traffic will reach around 1,060 exabytes, or just over one zettabyte. One look at society today with the ubiquity of smartphones, increasing automation and the advent of the driverless car leads to one conclusion, this trend is not set to slow down anytime soon. 

 Datacentres, the engine rooms of this new gold rush, were once maligned in the wake of the dotcom boom and bust of the early noughties but are arguably the fastest growing technology segment today.  In 2000, there were 27 pan-European data centre players, and 17 of them went out of business during this time.  The market didn’t really get back on its feet again until around 2007 or 2008.

Today there are many reasons as to why the datacentre and colocation markets are growing at around 10-12 per cent a year; other IT services as a whole are growing more slowly at around 2-4 per cent.

With low customer churn rates, predictable revenues and soaring demand for capacity, the datacentre market has emerged as a popular investment area in recent years.

Darlings of the investment world

Five to six years ago, data centres were thought of as the garbage cans of the IT industry. But recent sentiment suggests ‘they have become one of the darlings’ of the investment world with investors even describing them as ‘sexy’. Some of this is down to the fact the market has proved to be recession-proof in the past, while the emergence of trends like cloud computing and the internet of things (IoT) should ensure interest in data centre space remains high for a long time to come.

Cloud computing providers have been scrambling to keep up with demand.  Through 2016, major US technology groups such as IBM, Facebook and Google have all pledged investments in new datacentre projects in the UK – a real vote of confidence that shows Britain is open for business.

There is a sense optimism that as the data centre industry enters a new era in its development the next great UK company could emerge with the potential to revolutionise the global market.  Modern business models have changed the perception of IT from a necessity to being a business differentiator and whether it’s in IT infrastructure, where previous limitations in hardware are being removed by the versatility of software or the adoption of software-based infrastructure replacing hardware to support hybrid environments there are myriad opportunities for the most innovative start-ups to open the cloud to the whole enterprise market.

We also now know that cutting-edge technology alone can no longer guarantee success and longevity so there needs to be a greater emphasis on finding ways to help innovative companies develop and grow for longer in the UK.  British tech start-ups in the technology industry are thriving, but too many have been snapped up by bigger companies, particularly foreign investors before the UK economy has been able to absorb the success of their growth.

The UK Government has made very positive noises and plans to ameliorate the exodus.  In the recent Autumn Statement an injection of 400 million pounds has been promised to encourage tech start-ups to grow to scale here and the private investors we’ve spoken with have stated their long-term strategies for building great companies that will last. 

Looking to invest

As part of its 10th year celebrations leading investors will congregate at The Finance and Investment Forum (FIF) London for a special showcase for start-ups with a brief to unearth the next great UK technology company in the data centre gold rush. Now in its 10th anniversary the 2017 Finance and Investment forum seeks to look forward and help find the companies that will define the next decade of data centre and cloud. 

FIF London will take place on the 26th January 2017 offering an excellent networking opportunity.  Not only players and start-ups looking to raise money will be in attendance but also CFOs and CEOs from some of the largest established players.

A lot of key investors in the sector will be present, as well as many looking to invest for the first time, and coming from a variety of investors from Private Equity to property funds to pension funds to Venture Capital.  Successful early-stage investments in datacentre technology companies require industry experience and domain expertise.  For entrepreneurs, partnering with investors with personal experience and successful track record in IT infrastructure industry is a competitive advantage.

FIF London will focus on existing investments in the datacentre and cloud space, new players seeking investment, new investment and acquisition opportunities, companies seeking disposal of assets, brokerage opportunities, IPOs, and professional service tendering.

The next great UK company

As data volumes rise exponentially IT infrastructures will need to evolve to meet the new demands on speed, security and efficiency.  The next great UK company could provide innovation in the delivery of the micro datacentre to better handle the proliferation of IoT, security capabilities as part of data centre management to reduce the risks of security data breaches or ground breaking energy efficient solutions.

As investments, data centre providers have been changing hands for huge sums of money and a lot early investors in the market are seeing a good return on their initial investments.

The success of some of the companies in the market has been instrumental in that because investors have seen very good returns on their investments. Telecity, for example, at its low point was worth around £4m, and then got sold to Equinix for £2bn.

Investment in datacentres is about as sound of a strategy as one can make in the new year.  More businesses want big data, and datacentres are the way to deliver it. With that explosive set to continue, savvy-investors would be on the right track to take advantage now.

Philip Low, Founder & Chairman, BroadGroup
Image source: Shutterstock/Scanrail1

ABOUT THE AUTHOR

Mr Low founded BroadGroup an Information Media Technology and Professional Services company. Prior he has held several leadership roles in consulting firms focused on the IT and Telecoms sectors.