OTPP and Brookfield Infrastructure Partners Acquire Compass Datacenters
Brookfield Infrastructure Partners L.P. and its institutional partners (“Brookfield Infrastructure”) (NYSE: BIP; TSX: BIP.UN) and existing investor Ontario Teachers’ Pension Plan (“Ontario Teachers’”) today announced that they have entered into a definitive agreement with RedBird Capital Partners (“RedBird”) and the Azrieli Group (“Azrieli”) (TASE: AZRG) through which Brookfield Infrastructure and Ontario Teachers’ will acquire Compass Datacenters, LLC (“Compass”). Founder and Chief Executive Officer Chris Crosby and the current Compass management team will continue to lead the company post transaction closing.
Compass has scaled rapidly, particularly with its mega campuses in North America, and has been recognized as one of Inc. Magazine’s 5000 fastest growing companies for the past three years. The new ownership structure will provide Compass with continued strong operational and financial support to execute its sustainable and large-scale data center campuses across multiple regions. Compass has a proven product offering that provides its premier hyperscale customers with speed, flexibility and control to address the needs of the ever-changing technology landscape.
“Digitalization remains a key thematic investment for Brookfield Infrastructure. The need for data storage continues to grow at an exponential rate across the globe, and Compass complements our existing platforms in South America, Europe and Asia Pacific. Compass is a best-in-class data center platform that we have known for years and we are excited to partner with Chris, the Compass team, and Ontario Teachers’ to support Compass on its rapid growth journey.” said Sam Pollock, Chief Executive Officer of Brookfield Infrastructure.
“We are delighted to continue our partnership with Compass, a market leader with a track record of providing customized data center solutions to major technology clients. With the acceleration of technology adoption and advent of emerging technologies such as generative AI, we expect that demand for world-class and sustainable data centers will continue to grow in the coming years,” said Ashvin Malkani, Senior Managing Director, Technology Group, Private Capital at Ontario Teachers’. “We are pleased to welcome our longstanding partner Brookfield Infrastructure as a co-controlling shareholder in Compass. We look forward to working with them, Chris and the rest of Compass’ top-tier management team on the company’s next growth phase.”
“Our original thesis around Compass was building a world class data center platform focused on global hyperscale customers through the development of customized campuses,” said Tyler Alexander, Managing Director at RedBird. “Over a series of success-based investments that enabled disciplined growth, we executed against this thesis and built Compass into one of the preeminent global data center platforms. This outperformance is a credit to Chris Crosby and the full management team, as well as our partners in Ontario Teachers’ and the Azrieli Group.”
“We’re extremely thankful for RedBird and Azrieli’s investment, deep expertise and unwavering support over the years as we’ve built our business. I’m excited to embark on the next chapter of Compass’ evolution in partnership with Brookfield Infrastructure and Ontario Teachers’, two leading investment firms,” said Chris Crosby, Founder and Chief Executive Officer of Compass Datacenters. “The industry is at a critical inflection point today with AI and cloud demand continuing to fuel significant growth. With Brookfield Infrastructure and Ontario Teachers’ strategic expertise and deep financial resources, Compass is ideally positioned to meet growing demand for hyperscale data centers and campuses.”
The transaction is expected to close by year end, subject to customary regulatory approvals.
Advisors
Goldman Sachs & Co. LLC and Guggenheim Securities, LLC served as financial advisors to Compass and RedBird on the transaction. Deutsche Bank Securities Inc. also served as debt financing advisor.
Brookfield Infrastructure engaged BMO Capital Markets and Scotiabank as joint financial advisors and Kirkland & Ellis LLP as legal counsel. TD Securities is serving as financial advisor and Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as legal counsel to Ontario Teachers’. Fried, Frank, Harris, Shriver & Jacobson LLP and Wick Phillips, LLP served as legal counsel to Compass. DLA Piper served as legal counsel to Compass Management. Fried Frank served as legal counsel to RedBird.
About Compass Datacenters
Compass Datacenters, one of Inc. Magazine’s 5000 fastest growing companies, designs and constructs data centers for some of the world’s largest hyperscalers and cloud providers on campuses across the globe. Our corporate culture is predicated on continual improvement and innovation and has enabled us to marry technology with modern manufacturing methods to enhance our ability to consistently deliver our customer’s projects faster, with no sacrifices in quality. Since our inception, our sustainability efforts have encompassed the entire data center from its design to its post-delivery performance, including the efficient use of land, water-free cooling and a focus on Green House Gas reduction in the materials used to build our facilities and in their operation. Compass embraces a long-term perspective with the financial strength of investors Brookfield Infrastructure and Ontario Teachers’ Pension Plan. For more information, visit www.compassdatacenters.com.
About Brookfield Infrastructure
Brookfield Infrastructure is a leading global infrastructure company that owns and operates high-quality, long-life assets in the utilities, transport, midstream and data sectors across North and South America, Asia Pacific and Europe. We are focused on assets that generate stable cash flows and require minimal maintenance capital expenditures. Investors can access its portfolio either through Brookfield Infrastructure Partners L.P. (NYSE: BIP; TSX: BIP.UN), a Bermuda-based limited partnership, or Brookfield Infrastructure Corporation (NYSE, TSX: BIPC), a Canadian corporation. Further information is available at https://bip.brookfield.com.
Brookfield Infrastructure is the flagship listed infrastructure company of Brookfield Asset Management, a global alternative asset manager with over $825 billion of assets under management. For more information, go to https://brookfield.com.
About Ontario Teachers’
Ontario Teachers’ is a global investor with net assets of C$247.2 billion as of December 31, 2022. We invest in more than 50 countries in a broad array of assets including public and private equities, fixed income, credit, commodities, natural resources, infrastructure, real estate and venture growth to deliver retirement income for 336,000 working members and pensioners.
With offices in Hong Kong, London, Mumbai, San Francisco, Singapore and Toronto, our more than 400 investment professionals bring deep expertise in a broad range of sectors and industries. We are a fully funded defined benefit pension plan and have earned an annual total-fund net return of 9.5% since the plan's founding in 1990. At Ontario Teachers’, we don't just invest to make a return, we invest to shape a better future for the teachers we serve, the businesses we back, and the world we live in. For more information, visit otpp.com and follow us on LinkedIn.
About RedBird Capital Partners
RedBird Capital Partners is a private investment firm that builds high-growth companies and provides strategic capital solutions to founders and entrepreneurs. Founded in 2014 by Gerry Cardinale, RedBird integrates sophisticated private equity investing with a hands-on business building mandate that focuses on three core industry verticals– Media & Entertainment, Sports and Experiential Consumer, and Financial Services. Throughout his 30-year investment career, Cardinale has partnered with founders and entrepreneurs to build some of the most iconic growth companies in their respective industries. The firm currently manages over $8.6 billion in assets on behalf of a global group of blue chip institutional and family office investors. For more information, please go to www.redbirdcap.com.
So OTPP is reinvesting in Compass Datacenters alongside Brookfield Infrastructure Partners.
OTPP first invested in Compass Datacenters in partnership with RedBird Capital Partners back in 2017:
Established in 2011 and based in Dallas, Texas, Compass Datacenters specializes in building customized facilities for enterprise, cloud computing and service providers, according to a press release. The investment is also in partnership with the company’s management team, which will continue to lead and grow the business.
The financial terms of the transaction were not disclosed.
“We recognized that Compass is a leader in its market segment and, through this partnership, is very well positioned to serve as the trusted data center partner for even more customers whose evolving technology needs can be met by the facilities that Compass designs and builds,” said Jane Rowe, senior managing director of private capital at Ontario Teachers’.
Chris Crosby, chief executive officer at Compass Datacenters, welcomed the investment, noting “it provides Compass with the financial resources to fund the next phase of our growth with partners who have deep domain expertise in the industry.”
And when did Brookfield acquire its controlling stake?
At the end of May, Milana Vinn and Anirban Sen of Reuters reported that Brookfield and DigitalBridge were in $5.5 billion-plus bidding war for Compass Datacenters:
Brookfield Infrastructure Partners LP (BIP.N) and DigitalBridge Group Inc (DBRG.N) are battling it out in the race to acquire Compass Datacenters LLC for more than $5.5 billion, including debt, according to people familiar with the matter.
Brookfield and DigitalBridge are leading opposing bidding consortia in the auction for privately held Compass, the sources said, adding an outcome is expected by next month.
The terms of Compass' debt allow for it to be taken over by a new owner without it being refinanced, one of the sources said. This is making the deal easier to complete at a time when high interest rates and market volatility have made debt for leveraged buyouts scarcer and more expensive.
The sources requested anonymity because the matter is confidential. The Deal reported in February that Compass Datacenters was exploring a sale.
Compass Datacenters, Brookfield Infrastructure Partners and DigitalBridge declined to comment.
Dealmaking in the data center sector has spiked in recent years as the rapid growth of the sector, fueled by cloud computing, has attracted large infrastructure investors, and the fragmented nature of the industry has driven consolidation.
Dallas, Texas-based Compass Datacenters provides customized data centers for companies. It is owned by RedBird Capital Partners, Ontario Teachers’ Pension Plan, and the Azrieli Group.
Clearly Brookfield won that bidding war paying more than $5.5 billion, including debt to acquire Compass Datacenters, and now along with OTPP, they bought out RedBird Capital, a well-known private equity fund and the Azrieli Group, Israel’s leading real estate company founded by the late David Azrieli, the patriarch of the family who lived in Montreal (his daughters Danna, Naomi and Sharon sit on the Board and they also oversee the Azrieli Foundation).
Anyway, this is a great long-term deal for Brookfield and OTPP and I want to hone in on what Sam Pollock, CEO of Brookfield Infrastructure said:
“Digitalization remains a key thematic investment for Brookfield Infrastructure. The need for data storage continues to grow at an exponential rate across the globe, and Compass complements our existing platforms in South America, Europe and Asia Pacific. Compass is a best-in-class data center platform that we have known for years and we are excited to partner with Chris, the Compass team, and Ontario Teachers’ to support Compass on its rapid growth journey.”
For those of you who don't know him well, Sam Pollock is the best infrastructure investor in the world. He's very low key, let's Bruce Flatt (CEO of Brookfield) handle the public relations but he's an exceptional investor and a great partner for OTPP and Compass.
I also think it's worth honing in on what Ashvin Malkani, Senior Managing Director, Technology Group, Private Capital at Ontario Teachers’ said:
“We are delighted to continue our partnership with Compass, a market leader with a track record of providing customized data center solutions to major technology clients. With the acceleration of technology adoption and advent of emerging technologies such as generative AI, we expect that demand for world-class and sustainable data centers will continue to grow in the coming years. We are pleased to welcome our longstanding partner Brookfield Infrastructure as a co-controlling shareholder in Compass. We look forward to working with them, Chris and the rest of Compass’ top-tier management team on the company’s next growth phase.”Simply put, data centers are quickly becoming the central nervous system of all organizations, public and private, and generative AI will only accelerate a trend that is already in place.
Did Sam Pollock and OTPP pay too much for Compass? Not if you think about this deal over the long run and how they will help Chris Crosby, CEO at Compass Datacenters,and his team grow their operations globally.
Again, this deal is a win-win for everyone involved, including RedBird and the Azrieli Group.
In related news, OTPP put out a press release stating Connexa has completed acquisition of 2degrees’ passive mobile tower assets:
New Zealand’s specialist mobile tower infrastructure company, Connexa and mobile operator Two Degrees Mobile (“2degrees”) have completed the transaction under which Connexa has acquired 2degrees’ passive mobile tower assets for NZ$1,076 million.
The intention to acquire the assets was announced in December 2022, by Connexa and Ontario Teachers’ Pension Plan (Ontario Teachers’), Connexa’s largest shareholder.
The assets acquired by Connexa and divested by 2degrees comprise 1,124 mobile tower sites throughout New Zealand, including a number of in-flight sites to be delivered by 2degrees in 2023. The addition of 2degrees’ towers means Connexa’s tower network comprises more than 2,350 towers throughout New Zealand.
Connexa was formed in July 2022, with the acquisition of a 70% stake in Spark New Zealand's ("Spark") passive mobile tower infrastructure assets by Ontario Teachers’, with Spark retaining 30%. That transaction was completed in October 2022.
Following this latest acquisition, Ontario Teachers’ shareholding in Connexa rises to approximately 83% and Spark’s shareholding dilutes to around 17%.
Connexa chief executive Rob Berrill says the completion of the transaction follows regulatory approvals from the Commerce Commission and the Overseas Investment Office.
“We’re very pleased to complete this transaction with 2degrees which underscores Connexa’s vision to be New Zealand’s most comprehensive, efficient and sustainable tower network. We look forward to enabling a more connected digital future for Aotearoa as its demand and reliance on digital connectivity continues to grow,” he said.
Ontario Teachers’ senior managing director and head of Asia Pacific Infrastructure & Natural Resources Bruce Crane says the completion of the transaction establishes Connexa as New Zealand’s leading mobile tower infrastructure network.
“We are pleased to close this transaction and increase our ownership stake in Connexa. We are committed to supporting Connexa as it significantly expands its digital infrastructure platform in the years to come to meet New Zealand’s growing mobile and data demand needs,” he said.
Under the terms of the deal, 2degrees has entered into a 20 year-agreement with Connexa (plus rights of renewal) to secure access to existing and new towers. This includes an additional tower build and co-location commitment of 450 sites for 2degrees over the next 10 years.
2degrees chief executive Mark Callendar says the divestment of its passive tower assets supports the mobile operator’s strategy in New Zealand.
“We’re delighted to realise value from these assets, which will allow us to continue to invest in innovative solutions and services for Kiwis.
“You’ll continue to see laser focus on growth and value-added services from 2degrees, along with acceleration of a digital-first customer experience, and new product development.
“We look forward to working closely with Connexa as a specialist tower company focused on building out its network, including in areas that will support 2degrees’ future growth and development,” he said.
The significant forward build for 2degrees by Connexa is in addition to the country’s largest forward-committed new site build programme by Connexa for Spark. Connexa has committed to building a further 670 sites over the next ten years to support Spark’s mobile services.
Mr. Berrill said that Connexa was focused on delivering for its mobile operator customers to improve the efficiency and resilience of mobile tower assets in New Zealand.
“In addition to ongoing network expansion, our investment plans are focused on improving capacity and capability right across our network of towers,” he said.
“Mobile digital connectivity is increasingly an essential service in New Zealand and we look forward to working with our mobile network operator customers to ensure the latest in mobile digital technology is even more reliable and widely available.”
So, following this deal, OTPP will own 83% of Connexa which owns passive mobile tower infrastructure assets in New Zealand.
Another great long-term investment where Teachers' can lease these assets to mobile operator customers.
As Connexa's CEO Rob Berrill states, they are laser focused on delivering for their mobile operator customers to improve the efficiency and resilience of mobile tower assets in New Zealand.
Alright, let me wrap it up there.
Below, at Compass Datacenters, they build data centers for some of the largest companies in the world across the globe. Their use of advanced building technology combined with their focus on continual improvement means they are constantly refining both their designs and procedures to enable therm to deliver a customized data center when and where it’s required.
Also, Mission Critical magazine toured a site with Compass Datacenters alongside HVO-provider Foster Fuels to learn how the eco-friendly fuel was working for them.
Third, learn more about the mission of the Azrieli Foundation, an exceptional foundation that helps people discover their strengths and maximize their potential by connecting them to resources, expertise and education.
Fourth, Ontario Teachers' CEO Jo Taylor participated in a panel discussion called “The Only Way Forward — Leading through Global Turbulence," hosted by the Milken Institute Global Conference. Among the topics tackled by the panel: inflation, decarbonization, agility and more.
Below, you can read some key questions posed during the discussion and Jo's explanation on how he's helping to lead the C$247B pension plan through challenging economic times:
Ontario Teachers' is targeting $300B by 2030. What are some advantages for such a large pool of capital, and does it restrict agility?
JT: The biggest advantage we've [found] from scale is that we can build our investment team to be able to source and execute interesting opportunities around the world. Another thing is investors with larger pools of capital can look at opportunities with very attractive returns because you're able do it without debt. Or you can [target] companies of a size where not everybody can play. Competitively it's more attractive.
A challenge with scale is how to maintain a common approach and clarity of communication. Ontario Teachers' is very fortunate that we're large in terms of assets we look after for our stakeholders, but as a business we're nimble and relatively small. We have 1,500 people around the world and that allows us to be pretty agile in the way we behave, the way we think and the way we try to innovate.
It's really important that the senior colleagues around the business try to encourage everybody to think like we're a small business, albeit that we're operating a number of assets for our members. Through a combination of the way we've been set up and the way we're able to think, we've been able to change the allocation we have of our capital over the last two or three years to try and make sure we both access returns that are more consistent with the current market outlook, but also avoid some of those segments where we're going to make less attractive returns. Because for a more mature pension plan, one of the key criteria is to take out the volatility of our returns so that we make consistent returns on a year-by-year basis and remain funded for our members.
When you're trying to access private markets, do you feel that you need to be in those geographies?
JT: We're in a number of private asset categories, including private equity infrastructure and more recently in venture and growth sectors. We want to do this predominantly through our own investing team, so about 80% of what we've invested [has been] through our own people, rather than through third party funds. We do that to avoid fees and carry. We do work with outside funds, particularly [those that] either have a geographic knowledge we want to access or [that engage in] bespoke activities they're better at than we are.
What are your views on investing in private vs. publicly listed companies?
JT: The key question, [in addition to] making a return on assets that we want to acquire or invest in, is to make sure those businesses behave in a way that's appropriate [to] our value set. We want to make sure we've got some influence. It's easier to do that if we're a controlling investor or a significant minority investor, rather than [holding] a very small stake [where we're] not able to direct or encourage the business to do what we think is best in terms of gender equity and inclusion, climate footprint reduction or some of the social values that we think are important.
Probably the easiest way to do that is [with] a private business, where you can have that control and ownership. But if we're investing in public companies, we make sure we do one thing at a minimum— vote and give feedback to those management teams about whether they are performing up to our expectations from a financial point of view.
Watch the full panel discussion below which is also available here.
Lastly, Bloomberg Surveillance Ontario Teachers’ Pension Plan CEO Jo Taylor joins Dani Burger on Bloomberg TV from SuperReturn in Berlin following their fireside chat. A few key points from their discussion, which you can watch in full below:
- For private equity, now more than ever, strong partnerships built on trust and a good dialogue are key, where both parties can work together to find the best solutions for the businesses they are invested in.
- Inflation is going to be stubborn, prolonging higher interest rates, so as investors in growth, we should focus on finding investment opportunities in businesses with some tailwinds behind them.
- In a challenging investment environment, the beauty of being a large fund with exposure across asset classes means we can be creative and agile in seeking to protect the portfolio and find the best returns for the risk we take.
Take the time to watch the interview below (at minute 1:h:15 min towards the end).
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