CPP Investments and IMCO Scale Up Their Data Center Exposure

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Deborah Sophia of Reuters reports Equinix signs $15 billion joint venture to build U.S. data center infrastructure:

Data center firm Equinix is forming a joint venture with Singapore's sovereign wealth fund GIC and Canada Pension Plan Investment Board with goals to raise more than $15 billion in capital, the company said on Tuesday.

Equinix and its partners will use the capital to expand the U.S. footprint of "hyperscale" data centers, which are the largest in the industry, offering massive networking capacity and typically consuming as much power as a big city.

WHY IT'S IMPORTANT

The announcement comes at a time when companies across industries are racing to deploy artificial intelligence technologies in their operations, fueling demand for the immense computing power and storage provided by data centers.

Large data centers, such as the ones Equinix is looking to scale, are typically used by hyperscalers, which include the world's biggest technology companies such as Amazon, Microsoft and Alphabet's Google.

The joint venture will nearly triple the investment in Equinix's hyperscale center program, purchasing land for new facilities and adding over 1.5 gigawatts of new capacity over time.

BY THE NUMBERS

Canada Pension Plan Investment Board, or CPP Investments, and GIC will each control a 37.5% equity interest in the JV, while Equinix will own 25%, Equinix said.

The JV will also take on debt to eventually raise the total investable capital to more than $15 billion.

THE CONTEXT

Equinix has enjoyed strong growth in recent quarters powered by demand for its data centers, with the company raising its annual core earnings forecast in August.

It has also been eyeing expansion in the high-growth potential region of Southeast Asia, acquiring three data centers in the Philippines earlier this year.

The company already has a partnership with Singapore's GIC for hyperscale projects across regions.

Earlier today, Equinix put out a press release on this joint venture:

REDWOOD CITY, Calif., Oct. 1, 2024 /PRNewswire/ -- Equinix, Inc. (Nasdaq: EQIX), the world's digital infrastructure company®, today announced the signing of a joint venture (JV) agreement, subject to closing conditions, in the form of a limited liability partnership with GIC and Canada Pension Plan Investment Board (CPP Investments), with the intent to raise over US$15 billion in capital together with its partners. Driven by increasing artificial intelligence (AI) and cloud growth, the JV is intended to accelerate the Equinix xScale data center portfolio, which enables hyperscale companies to add core deployments to their existing access point footprints at Equinix International Business Exchange™ (IBX®) data centers. At full buildout, this new JV will nearly triple the investment capital of the Equinix xScale program.

With the capital raised through the JV, Equinix expects the JV to purchase land to build new state-of-the-art xScale facilities on multiple greater-than-100-megawatt (MW) campuses in the U.S., eventually adding more than 1.5 gigawatts of new capacity for hyperscale customers.

Highlights / Key Facts:

  • Equinix has a longstanding relationship with GIC, having previously partnered on xScale projects in Asia, the Americas and Europe (see links below for details on other joint ventures). This agreement represents the first JV between Equinix and CPP Investments, which manages the assets of the Canada Pension Plan for more than 22 million contributors and beneficiaries.

  • Under the terms of the agreement, CPP Investments and GIC will each control a 37.5% equity interest in the joint venture, and Equinix will own a 25% equity interest. Each party has made equity commitments, and the joint venture also expects to take on debt to raise the total pool of investable capital to more than US$15 billion over time.

  • Equinix's existing hyperscale joint venture portfolio in Europe, Asia-Pacific and the Americas has a committed investment of over US$8 billion, which is expected to result in greater than 725 MW of power capacity across more than 35 facilities at full buildout.

  • Platform Equinix® features nearly 40% of the private on-ramps to the top global cloud service providers, which is more than any other provider. As hyperscale companies scale their operations at Equinix, the ecosystem of over 10,000 enterprises and other companies currently operating at Equinix can benefit from increased opportunities to directly connect and operate in proximity to the largest global cloud operators.

  • xScale data centers serve the unique core workload deployment needs of the world's largest cloud service providers, including hyperscalers, which are key players in the AI ecosystem. These companies can add core deployments to their existing access point footprints at Equinix IBX data centers, enabling their growth on a single platform that can immediately span 72 global metros and offer direct interconnection to an ecosystem of more than 10,000 customers.  

  • Equinix is committed to delivering sustainable digital infrastructure and engaging our suppliers and partners in supply chain responsibility. Equinix has continued to make advancements in the way it designs, builds and operates its data centers with high energy-efficiency standards, and all xScale data centers will be LEED certified (or certified in the regional equivalent).

  • The closing of the joint venture is subject to the receipt of required regulatory approvals, which are expected to be received in the fourth quarter of 2024.  

  • Morgan Stanley & Co. LLC served as exclusive financial advisor to Equinix in connection with this transaction.

Quotes

  • Adaire Fox-Martin, CEO and President, Equinix

    "As the world's leading companies build out their infrastructure to support key workloads such as artificial intelligence, they require the combination of large-scale data center footprints optimized for AI training and interconnection nodes for the most efficient inferencing. Our xScale and IBX offerings are uniquely positioned to address this business need, enabling companies to realize the powerful potential of AI."

  • Goh Chin Kiong, Chief Investment Officer, Real Estate at GIC

    "We are proud to expand our years-long partnership with Equinix, addressing a massive and growing demand for digital infrastructure, driven by the rapid advancement of technology, including AI. GIC's capital and scale, paired with Equinix's operational expertise, has driven meaningful value across our investments together. Through this joint venture, we look forward to providing the funding needed to develop state-of-the-art digital infrastructure across the U.S. alongside our likeminded partner, CPP Investments."

  • Max Biagosch, Senior Managing Director, Global Head of Real Assets & Head of Europe for CPP Investments

    "CPP Investments has invested in data centers for several years and we have developed strong expertise in this space. This investment will help meet the increasing demand for data centers driven by rapid technological advancements and marks a significant step forward in our broader data center strategy. We are pleased to partner with Equinix and GIC to deliver strong long-term risk-adjusted returns for the CPP Fund."

Additional Resources 

About Equinix
Equinix (Nasdaq: EQIX) is the world's digital infrastructure company®. Digital leaders harness Equinix's trusted platform to bring together and interconnect foundational infrastructure at software speed. Equinix enables organizations to access all the right places, partners and possibilities to scale with agility, speed the launch of digital services, deliver world-class experiences and multiply their value, while supporting their sustainability goals.

Alright, this is another big hyperscale data centers deal for CPP Investments which a month ago announced it is co-investing alongside Blackstone to buy AirTrunk in A$24bn deal (see my comment here).

CPP Investments secured a 12% interest in AirTrunk, as part of that transaction which values the business at an implied enterprise value of over A$24 billion.

That was a purely private deal.

This joint venture with GIC and Equinix is another huge deal which entails more in terms of dollars invested once the joint venture matures and reach $15 billion (debt and equity).

GIC and CPP Investments will each control 37.5% equity interest in the JV (US$5.625 billion) and Equinix will control 25% to ensure alignment of interests.

Max Biagosch, Senior Managing Director, Global Head of Real Assets & Head of Europe for CPP Investments summarized the deal well:

"CPP Investments has invested in data centers for several years and we have developed strong expertise in this space. This investment will help meet the increasing demand for data centers driven by rapid technological advancements and marks a significant step forward in our broader data center strategy. We are pleased to partner with Equinix and GIC to deliver strong long-term risk-adjusted returns for the CPP Fund."

Oddly enough, there is no mention yet of this deal on CPP Investments' newsroom.

I found out about it through James Bryce, Head of Infrastructure at CPP Investments who posted this on LinkedIn:


So, this is the fourth major digital infrastructure deal in the last year.

Obviously CPP Investments has a thematic theme going on here but note it was GIC who has a longstanding relationship with Equinix, having previously partnered on xScale projects in Asia, the Americas and Europe.

This agreement represents the first JV between Equinix and CPP Investments, hopefully one of many more as the company increases its hyperscale data center foot print around the world.

This deal is a win-win for all parties. Equinix gets two solid, long-term strategic partners that can provide much needed capital to fund its expansion and GIC and CPP Investments can continue benefiting from the explosive growth in hyperscale data centers driven by technological advancements.

For us regular retail investors, we can't invest in this joint venture directly, benefiting from great terms, but we can invest in Equinix shares over the long run:

 

The top holders are the usual suspects: Vanguard, BlackRock, Fidelity and others:

In another major data centers deal, last week, IMCO announced it and Coatue took part in the successful completion of US$500 million in structured financing in Brazil's Scala Data Centers:

SÃO PAULO, BRAZIL, September 23, 2024 - Scala Data Centers, the leading hyperscale sustainable data center platform in Latin America, is pleased to announce the successful completion of US$500 million in structured financing. The investment includes US$250 million from Coatue Tactical Solutions and US$250 million from the Investment Management Corporation of Ontario ("IMCO").

The funds will be used to accelerate Scala's expansion across Latin America to support the compounding growth of cloud and AI. In addition, Scala will continue to invest in technology innovation and maintain its commitment to sustainability.

"We are thrilled to welcome Coatue and IMCO and honored by their choice of Scala," said Marcos Peigo, CEO and co-founder of Scala Data Centers. "Their support is a powerful endorsement of our vision and the relentless dedication of our team. This investment and their partnership will allow Scala to further accelerate our development of next-generation infrastructure to support the continued adoption of cloud and AI technologies in the region."

Coatue's Investment Thesis: Capturing the AI Opportunity

Coatue Management, a leading technology-focused investment firm, brings extensive expertise in the AI, digital infrastructure and big tech ecosystems. Their investment in Scala Data Centers highlights the potential for infrastructure to drive AI-driven innovation within the region and around the world. Scala's state-of-the-art data centers are strategically positioned to support the burgeoning demand for AI and digital services in Brazil, Latin America, and beyond.

Scala Data Centers has emerged as a regional leader in hyperscale data centers and is at the forefront of the digital revolution in Latin America," said Malachi Price, Partner at Coatue. "Our investment reflects our belief in Scala's ability to capture the AI opportunity and drive further digitization in the region. We are excited to support Scala's mission to provide cutting-edge, sustainable data center solutions," said Robert Yin, Partner at Coatue.

IMCO's Strategic Investment: A Testament to Sustainable Growth

IMCO, one of Canada's largest institutional investors, has a long-term view and a proven track record of investing in companies that demonstrate a commitment to sustainability and solid financial performance. This significant investment underscores IMCO's confidence in the opportunity for Scala Data Centers to drive digital transformation across Latin America and expands IMCO’s digital infrastructure strategy in a high-growth region.

"As a long-term investor, IMCO seeks sustainability and growth as key investment attributes for our digital infrastructure portfolio. Scala has this rare combination and represents the kind of world class asset IMCO invests in," said Fred Robert, Managing Director, Digital Infrastructure, IMCO. "Leveraging abundant hydro power in Brazil, Scala positions itself as an industry leader in sustainability within the datacenter sector. We expect this differentiator to drive its continued success with hyperscalers in the region."

About Scala Data Centers

Scala Data Centers is a leading sustainable data center platform in the Latin America hyperscale market. Based in Brazil and backed by DigitalBridge, it was developed to meet and exceed the growing demand for digital access in countries like Brazil, Chile, Mexico and Colombia. Scala has one of the largest portfolio of secured power and land in the region, surpassing 1 GW of critical capacity and a highly qualified team of over 1,100 professionals, applying a flexible and innovative approach to delivering state-of-the-art data center infrastructure for Hyperscale customers, cloud and content providers. Our CoE (Center of Excellence) provides customized solutions for each client with mission critical availability, best in class energy and water efficiency, and evolving high densities capable of supporting the Artificial Intelligence workloads. All this is combined with best sustainability practices guided by our ESG (Environmental, Social, Governance) program. For more information, visit https://scaladatacenters.com/en/.

About IMCO

The Investment Management Corporation of Ontario (IMCO) manages $77.4 billion of assets on behalf of our clients. Designed exclusively to drive better investment outcomes for Ontario's broader public sector, IMCO operates under an independent, not-for-profit, cost recovery structure. We provide leading investment management services, including portfolio construction advice, better access to a diverse range of asset classes and sophisticated risk management capabilities. As one of Canada's largest institutional investors, we invest around the world and execute large transactions efficiently. Our scale gives clients access to a well-diversified global portfolio, including sought-after private and alternative asset classes. Follow us on LinkedIn and X@imcoinvest.

IMCO leaned on its strategic partner, Coatue, to be part of this financing and the funds will go to support Scala's expasion across Latin America.

Fred Robert, Managing Director, Digital Infrastructure at IMCO, summarized the deal nicely:

"As a long-term investor, IMCO seeks sustainability and growth as key investment attributes for our digital infrastructure portfolio. Scala has this rare combination and represents the kind of world class asset IMCO invests in. Leveraging abundant hydro power in Brazil, Scala positions itself as an industry leader in sustainability within the data center sector. We expect this differentiator to drive its continued success with hyperscalers in the region."

I note this part: "Leveraging abundant hydro power in Brazil, Scala positions itself as an industry leader in sustainability within the data center sector."

IMCO just released its 2023 Sustainability Report which highlights how seriously it takes sustainable investing, so this deal checks off a lot of boxes, first and foremost a great deal in the burgeoning data center industry in Latin America.

It's not at the scale of the Equinix deal but IMCO is a much smaller fund than CPP Investments and is really just expanding its data center platform.

Below, Charles Meyers, former President and CEO of Equinix, discusses the digital infrastructure market (February 2024).

In March, Equinix announced that its president and CEO Charles Meyers will transition to the role of executive chairman, and Google Cloud go-to-market president Adaire Fox-Martin will become Equinix president and CEO.

Featured at the top of this post, Ms. Fox-Martin has the experience and industry know how to steer this company in the right direction over the long run.

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