By Kevin Xu, Nancy Huang (Melbourne University), Annabel Lai, Sanghyeon Kim, Freya Zhang, Edward Fung (HKUST University).
Photo: Markus Spiske (Unsplash)
Overview of the deal
Acquirer: Blackstone
Target: AirTrunk
Total Transaction Size: AU$24 billion (US$16 billion)
Closed date: N/A (Pending approval by Australian Foreign Investment Review Board)
Deal Announcement Date: 09/04/2024
Target advisor: Goldman Sachs
Acquirer advisor: Simpson Thacher & Bartlett, King & Wood Mallesons (legal); Deutsche Bank, RBC Capital Markets, Citi (financial)
Deal intro: The acquisition of AirTrunk, the Australia based hyperscale data center operator, marks the largest investment by Blackstone in the Asia Pacific region as the global investment firm continues its expansion into the rapidly growing data center markets. Blackstone and the Canada Pension Plan (CPP) Investment Board will acquire a 76% stake and a 12% stake respectively, from Macquarie Asset Management (MAM) and the Public Sector Pension Investment Board (PSP).
AirTrunk is the largest data center platform in the Asia Pacific region, with a sizable presence in Australia, Japan, Malaysia, Hong Kong, and Singapore. It has more than 800MW of capacity committed to customers and owns land that can support over 1GW of future growth across the region.
Blackstone will commit equity from 4 different strategies, namely, Blackstone Real Estate Partners, Blackstone Infrastructure Partners, Blackstone Tactical Opportunities, and Blackstone’s private equity strategy for individual investors, into this acquisition. The exact composition of equity stakes in the target shared by 4 different strategies has not yet been disclosed by the acquirer.
“AirTrunk is another vital step as Blackstone seeks to be the leading digital infrastructure investor in the world across the ecosystem, including data centers, power and related services" - Jon Gray, President and Chief Operating Officer of Blackstone
Company Details (Acquirer - Blackstone)
Blackstone Group Inc. (NYSE: BX) is a leading global investment firm with a diversified portfolio of assets under management (AUM) across real estate, private equity, infrastructure, credit, and hedge funds. With over $1 trillion USD AUM, Blackstone operates across a range of sectors, including technology, healthcare, financial services, and industrials, enabling it to drive strategic investments and growth across industries.
Blackstone currently oversees a $55 billion USD data center portfolio and has a further $70 billion USD in development pipeline. The CEO of Blackstone, Stephen Schwarzman, has recently announced the global investment firm’s bullish view of AI infrastructure and their ambitions to become the leading investor in AI Infrastructure globally.
Founded in 1985, headquartered in New York City, New York, USA
CEO: Stephen A. Schwarzman
Number of employees: Approx 4700
Market Cap: $ 118.7bn (as of 09/18/2024)
EV: $ 197.5bn
LTM Revenue: $ 13.0bn
LTM EBITDA: $ 5.1bn
LTM EV/Revenue: 15.2x
LTM EV/EBITDA: 38.9x
Recent Transactions:
$4.5 billion investment as part of a $ 7.5bn financing package in CoreWeave (May 2024)
$7 billion joint venture with Digital Realty (Dec 2023)
$10 billion acquisition of QTS Realty Trust (Jun 2021)
Company Details (Target - AirTrunk)
AirTrunk, founded by Robin Khuda in 2015, has grown into the largest data center platform across the Asia Pacific and Japan, with 11 facilities located in key cities such as Sydney, Melbourne, Tokyo, Hong Kong, Singapore, Johor Bahru, and Osaka. As a pioneer in hyper-scale cloud computing, AirTrunk designs, builds, and operates scalable, cost-efficient, secure, and sustainable data centers, offering flexible, tailor-made solutions for cloud and large technology companies. Its business model focuses on developing hyperscale data centers that are leased or licensed to tech giants like Amazon, Microsoft, and Google, meeting their increasing demand for power and capacity.
In 2020, Macquarie and PSP Investments acquired 88% of AirTrunk, valuing the company at over US$2 billion (AU$3 billion). Since then, the company has expanded from five to eleven data centers and increased its contracted capacity eightfold. The rapid rise of cloud computing and generative AI has fuelled a surge in demand for hyperscale data centers, positioning AirTrunk as a key player in the sector.
Founded in 2015, headquartered in Sydney, Australia
CEO: Robin Khuda (2015-)
Number of employees: 350
Deal Multiple: 21x run-rate EBITDA (accounts for all the contracts AirTrunk has signed)
Projections and Assumptions
Short-term consequences
Blackstone's acquisition of AirTrunk is expected to be favorable and accretive to its EPS. The deal provides Blackstone access to AirTrunk's current 800MW capacity and its planned 1GW expansion. It also allows Blackstone to leverage its expertise in the data center space, which includes a portfolio worth $55 billion of data centers including facilities under construction as well as $70 billion in prospective development projects. This acquisition observably capitalizes on the synergies between Blackstone’s extensive investment and operational experience in digital infrastructure and AirTrunk's strong capabilities in the Asia Pacific.
From strategic and geographic perspectives, AirTrunk's footholds in vital Asia Pacific technology hubs like Australia, Japan, Singapore and Hong Kong provide Blackstone with premium access to prospects. As the foremost global investor in data centers, this acquisition allows Blackstone to capitalize from the immense digital maturation of the high-potential region through AirTrunk's regional supremacy.
Overall, this acquisition of AirTrunk by Blackstone has the makings of a win-win partnership that potentially benefits both. AirTrunk's CEO, Robin Khuda, sees the deal as a validation of their strong business model and believes it positions the company for greater expansion across the Asia Pacific, supported by Blackstone's global scale, expertise, and relationships. Meanwhile, Blackstone aims to leverage AirTrunk's best-in-class data center platform and operational team under Khuda's continued leadership to strengthen its own digital infrastructure capabilities and financial performance. With both parties bringing complementary assets and incentives to the table, the transaction lays the groundwork for a synergistic collaboration that will drive lasting value for investors.
Long-term Upsides
The acquisition of AirTrunk for US$16 billion (AU$24 billion) cemented Blackstone’s largest investment in the Asia Pacific region and aligns with Blackstone's strategy to build upon its existing US$55 billion data-center portfolio. This is consistent with Schwarzman’s (Blackstone, CEO) commentary in July 2024, prior to the deal announcement, that Blackstone has a bullish view on AI infrastructure and sees the firm investing US$2 trillion in building new data centers worldwide in the next five years, with half of total investment outside U.S.
The increasing demand for AI training and the continued shift toward public cloud services—where data moves from private networks to shared infrastructure provided by giants like Amazon, Microsoft, and Google, often hosted in AirTrunk’s data centers—positions Asia as a key driver of global growth in digital infrastructure. As digital transformation accelerates across the region, Moody’s projects data center capacity in the Asia-Pacific to expand at a compound annual growth rate (CAGR) of nearly 20% through 2027, requiring an estimated $564 billion in investment to more than double capacity to approximately 24,800 megawatts. This rapid expansion aligns seamlessly with AirTrunk’s strategy of developing hyperscale data centers in key Asian markets, capitalizing on the region's surging demand for scalable, secure, and sustainable digital infrastructure. As Asia emerges as a global hub for cloud computing and AI advancements, AirTrunk is well-positioned to solidify its leadership in the region’s fast-growing data center landscape.
The recently announced $30 billion partnership between BlackRock and Microsoft to invest in global data centers and infrastructure highlights strong potential in the digital infrastructure space, with further upside driven by the ongoing wave of generative AI advancements. Through its partnerships with MAM and PSP Investments, AirTrunk has strengthened its commitment to Environmental, social, and governance (ESG), work health and safety (WHS), and secured the world’s largest sustainability-linked loan by a data center operator. Now, in collaboration with Blackstone, AirTrunk continues its pledge to achieve 100% renewable energy by 2030, while driving the energy transition and meeting the sector’s power demands across the Asia-Pacific region in innovative ways.
With Blackstone’s prior experience managing a US$55 billion portfolio of data centres, including ongoing projects and a prospective development pipeline exceeding US$70 billion, AirTrunk’s management team is well-positioned to leverage Blackstone’s capital, sector expertise, and extensive network across global markets to supports AirTrunk’s continued expansion in the rapidly growing Asia region, supporting CEO Robin Khuda’s ambition to make AirTrunk a $100 billion company and expansion into 40+ markets.
Risks and Uncertainties
AirTrunk has been testing the waters for growth since early 2023, when it first teased the idea of an IPO. At the time, the company was valued at $6.4 billion (AU $10 billion), and now, it's projected to be worth an astonishing US $16.1 billion (AU $24 billion). This 20x running EBITDA valuation shows considerable confidence in AirTrunk’s future, driven by its aggressive expansion plans and the booming demand for data centers across the Asia-Pacific region.
AirTrunk's path forward will likely be marked by continued expansion, which could involve strategic acquisitions to bolster its market presence or scaling its existing infrastructure. However, expanding at this pace carries significant challenges, especially in maintaining quality across new facilities, integrating acquisitions seamlessly, and navigating complex regulatory environments. There's also the risk of regulatory blocks or scrutiny due to concerns about foreign ownership, especially as more governments become protective of their national data infrastructures.
A key concern for AirTrunk as it scales is the depreciation of its physical infrastructure. Data centers have finite lifespans, and as technology evolves, the hardware and facilities within them may need regular upgrades or replacements. This depreciation adds a layer of complexity to their long-term financial outlook.
The data center market itself is expanding quickly, and this rapid growth could lead to increased competition, with GDS Holdings, Global Switch, and NEXTDC competing aggressively in the same space in the Asia-Pacific region. A more competitive market could compress margins, potentially impacting profitability, especially if supply begins to outpace demand.
AirTrunk also faces potential disruption from emerging technologies that could reduce the reliance on traditional, large-scale data centers. Take decentralized Cloud Technologies for an example, Blockchain-based platforms and distributed cloud networks are reshaping how data is stored and processed. These technologies distribute computing power across a network of smaller nodes, reducing reliance on centralized data centers. Further, new storage and compression technologies, such as high-density solid-state drives (SSDs) and even experimental DNA-based storage, could reduce the physical footprint required to store vast amounts of data, impacting the need for large data center facilities.
AirTrunk's growth prospects are impressive, but the company faces several risks as it pursues continued expansion. Emerging technologies and advancements in data storage could reduce the reliance on traditional data centers. Meanwhile, market competition, regulatory scrutiny, and the depreciation of physical assets present challenges that must be carefully managed. While its current valuation reflects strong confidence, Blackstone needs to maintain profitability in the face of rapid technological and market changes for AirTrunk's long-term success.
Sources
https://stockhead.com.au/tech/airtrunks-deal-of-the-year-triggers-re-pricing-of-asx-data-centre-stocks/