Digital Realty, the largest global provider of cloud- and carrier-neutral data centre, colocation and interconnection solutions, announced today it has entered into a definitive agreement to acquire a majority stake in Teraco, Africa’s leading carrier-neutral colocation provider, from a consortium of investors, including Berkshire Partners and Permira, in a transaction valuing Teraco at $3.5 billion or R55.6 billion.
After closing the deal, Digital Realty will own 55% of Teraco, while the remaining 45% will be held by a consortium of existing investors, including management, Berkshire Partners LLC, Permira, van Rooyen Group, Columbia Capital, Stepstone Ventures and the Teraco Connect Trust.
The rolling equity investors in Teraco will have the opportunity to put their interests to Digital Realty between 3.5-5.5 years after closing, while Digital Realty will have the right to call those equity interests between 5.5-6.5 years after closing.
The Teraco investment will be financed through a combination of proceeds from Digital Realty’s private capital and capital recycling initiatives, committed funding under the existing forward equity commitment and other potential future financings.
“This highly strategic transaction immediately cements Digital Realty as the leading colocation and interconnection provider in Africa, a region experiencing rapid digital transformation,” said Digital Realty CEO, A. William Stein.
“Teraco is the industry leader in South Africa and the continent’s connectivity hub. This investment will enhance our ability to serve customers on a global basis by adding significant regional scale with a premier, network-dense portfolio in South Africa’s most strategically important metros.
“Teraco will also advance our strategy of increasing exposure to highly connected, network- and carrier-dense facilities to enhance our global coverage and connectivity capabilities.”
The transaction is expected to close in the first half of 2022 and is subject to customary closing conditions. Solomon Partners is acting as financial advisor and Latham & Watkins LLP and Bowmans are acting as legal advisors to Digital Realty. Goldman Sachs is acting as financial advisor to Teraco and Weil, Gotshal & Manges LLP and ENSafrica are serving as legal advisors to Teraco.
“We are excited to enter our next chapter by joining forces with Digital Realty to create a truly global, scaled platform serving our customers in Africa and beyond,” said Teraco, CEO Jan Hnizdo.
“Our combined platform will be uniquely positioned to serve the full customer spectrum with the ability to support their growth around the world. We look forward to working with the Digital Realty team to extend our state-of-the-art data centre and connectivity solutions to capitalise on the favourable industry trends and tremendous market opportunity.”
The Teraco management team will remain in place and maintain day-to-day responsibility for operations in South Africa.
The Teraco management team is led by Hnizdo, a long-time team member who has helped drive Teraco’s significant growth over the last decade. Hnizdo is supported by an experienced and highly qualified local management team with over 100 years of combined experience.
In addition, Teraco’s existing investors, including several leading global digital infrastructure investors with significant experience investing in Africa, are rolling forward a significant portion of their equity interests, demonstrating their conviction in Teraco’s future growth prospects.
The continuing involvement of management and the existing investors is consistent with Digital Realty’s new market entry strategy of partnering with strong local management teams and experienced regional capital partners.
Leading colocation and interconnection platform
Teraco is the largest and most densely interconnected data center platform in Africa, with seven state-of-the-art facilities strategically located in the key South African metros of Johannesburg, Cape Town and Durban. Teraco serves over 600 customers, including more than 275 connectivity providers, over 25 cloud and content platforms and approximately 300 enterprises.
Teraco facilitates approximately 22,000 interconnections between customers and its Isando campus in Johannesburg is one of the most densely interconnected sites in the world, with over 13,000 cross-connects. Teraco also hosts seven on-ramps to leading global cloud service providers in Johannesburg and Cape Town and currently provides direct access to seven subsea cables in Durban on the east coast and Cape Town on the southwest coast.
Home to subsea cables circling Africa
In addition to direct access to seven existing subsea cable systems, several consortiums of leading cloud and content platforms are currently building three additional subsea cables which are expected to land over the next three years. The significant investment in these proprietary networks underscores the tremendous expected future growth of digital infrastructure in Africa, and the leadership transition from telco-led consortia to content-controlled partnerships is expected to transform internet connectivity across the continent. These new and existing cable systems encircle Africa, offering low-latency access from the east and west coasts of Africa to Europe and Asia.
Solidifies global platform first-mover advantage
The combination of Teraco’s leading position in South Africa with Digital Realty’s leading connectivity hubs in Nigeria on the west and Kenya on the east coast – along with Digital Realty’s strategic Mediterranean interconnection hubs in Marseille and Athens – is expected to significantly strengthen Digital Realty’s leading pan-African position, enhancing the ability to serve local as well as multinational enterprises and service providers.
Underserved region expected to see significant growth
The total addressable data center market in Africa is expected to expand significantly over the next several years. The total population of Africa is nearly 1.4 billion, or more than 15% of the world’s total population, with a median age of just 20 years.
Digital transformation is accelerating, and it is happening in South Africa first and radiating across the African continent. South Africa’s economy is the third-largest in Africa, and South Africa is home to more than half of the region’s top 500 companies.
South Africa also serves as either the worldwide or regional headquarters for many companies doing business elsewhere in Africa. South Africa is the largest data center market on the continent, although it is estimated that only a fraction of potential demand is being effectively addressed, given the relative scarcity of institutional quality data center capacity.