Friday, June 9th, 2017

Time	Event
3:33p	Digital Realty Agrees to Buy DuPont Fabros for $4.95B (Bloomberg) — Digital Realty Trust Inc. agreed to buy DuPont Fabros Technology Inc. for about $4.95 billion in stock, a deal that would add to its data-center properties in areas such as California’s Silicon Valley. Investors in Washington-based DuPont Fabros will get 0.545 Digital Realty shares for each of their shares, the real estate investment trusts said in a statement Friday. That values DuPont Fabros stock at $63.63 a share, about 15 percent more than Thursday’s closing price. The companies said the transaction has an enterprise value of $7.6 billion, including $1.6 billion of debt. The deal would allow San Francisco-based Digital Realty to grow in top markets such as northern Virginia, Chicago and Silicon Valley. The combined company would be the largest wholesale data-center REIT in the U.S., analysts at KeyBank Capital Markets said in a note to clients. The transaction would be a boon for the entire sector, reducing competition and helping balance price control, the analysts wrote. Acquiring DuPont Fabros’ purpose-built data centers “will significantly expand Digital Realty’s hyper-scale product offering and improve its ability to meet the rapidly growing needs of cloud and cloud-like customers,” Digital Realty said in the statement. DuPont Fabros also has six data-center projects under construction that are 48 percent pre-leased. DuPont Fabros shares jumped 13 percent to $62.55 at 10:17 a.m. New York time. Digital Realty slipped 0.9 percent to $115.73. The companies said the deal would allow them to save as much as $18 million in costs a year. The combined entity is expected to have the highest earnings before interest, taxes, depreciation and amortization — a measure of profitability — of any U.S.-based publicly traded data center REIT, according to the statement. The transaction, expected to close in the second half of the year, is subject to shareholder approval. (Comment on this)
8:05p	DuPont Fabros Deal Gives Digital Realty More Firepower in the War for Cloud Deals Acquiring DuPont Fabros Technology significantly expands Digital Realty Trust’s play in key existing and emerging North American data center markets — especially its ability to win large, multi-megawatt deals with hyper-scale cloud platforms — but it also ensures one of the several well-financed new players doesn’t acquire DuPont Fabros and turn its strong position in the top metros against Digital. Digital Realty, a San Francisco-based real estate investment trust and one of the world’s largest data center landlords, announced the blockbuster all-stock deal Friday, saying it had agreed to acquire DuPont Fabros for about $7.6 billion, including $1.6 billion in assumed debt. “A real game-changer,” is how Andrew Power, Digital Realty’s CFO, characterized the deal in an interview with Data Center Knowledge. “We are getting very high-quality assets in the top US markets,” he said. “It also deepens our relationship with some of these blue-chip customers: Microsoft, Apple, Salesforce, and others.” The deal significantly increases Digital’s footprint in the top-tier Northern Virginia, Chicago, and Silicon Valley data center markets. DFT has 12 data centers, with a total of 300MW of power. It also gives Digital substantial footprint in secondary markets where it has not been a major player: Toronto and Hillsboro, Oregon (about 20 miles west of Portland). Once the acquisition is closed, Digital Realty will become the largest multi-tenant data center provider in North America with 18 percent market share, knocking Equinix down from number-one to number-two with 16 percent market share, according to the market-research firm IHS Markit (click chart to enlarge): More Firepower More than anything, the acquisition gives Digital additional firepower to go after the booming market for leasing data center space to hyper-scale cloud companies, who have been spending billions upon billions of dollars to expand capacity to serve their growing customer bases and compete among themselves for market share. Total capital expenditures by Amazon, Microsoft, Google, IBM, Oracle, and Alibaba went from $7.2 billion in 2010 to $25.3 billion in 2016, according to an estimate by DuPont Fabros cited in a slide deck Digital Realty presented to analysts Friday. The company clearly doesn’t expect this rate of growth to decrease significantly any time soon, and DuPont Fabros has been successful in winning deals with those types of customers, signing for example a single deal for nearly 30MW total in Chicago suburbs and in Ashburn, Virginia, in the first quarter. Having inventory available or close to being available in top markets is key to winning hyper-scale deals, and the acquisition gives Digital six projects currently under construction in Ashburn, Chicago, Santa Clara, and Toronto, all due to be delivered within the next 12 months. Nearly half the space in these future facilities has been pre-leased. Besides just having product available, having more buildings per metro gives Digital the advantage of being able to provide multiple locations in a single metro to a cloud provider, Power said. To improve reliability of their services, cloud providers typically have two, three, or more physically separate cloud availability zones per metro, supplied whenever possible by different power grids, different electrical substations, and connected to different fiber networks. The latter set of factors (diverse sources of electricity and connectivity) is more important to cloud providers than being able to lease from a single provider in a metro, Jabez Tan, research director at Structure Research, said. Having a single provider in a metro is a factor they consider, but it isn’t something that will make or break a deal, he said. Microsoft, Facebook Become Digital’s Top Clients The acquisition makes Microsoft, DuPont Fabros’s largest client by annualized rent, the second-largest client in Digital Realty’s portfolio, using the data center provider’s services in 15 locations. Microsoft, the world’s second-largest cloud provider, has not had substantial presence in Digital Realty data centers, although its new subsidiary LinkedIn has been Digital’s fifth-largest client, using its services in six locations. The deal also makes Facebook Digital Realty’s third-largest customer, adding four locations to the nine Facebook has already been using Digital in. Another major brand whose presence within Digital’s footprint will expand with the acquisition is Apple, which has signed for 14MW of capacity DuPont Fabros currently has under construction in the Chicago market, Jim Kerrigan, principal at the real estate firm North American Data Centers, said. IBM will remain Digital Realty’s top client, hosting its infrastructure with Digital in 24 locations. Here’s how Digital’s top 20 clients will rank if and when the acquisition closes (click to enlarge): Source: Digital Realty Trust A Preemptive Strike? While expanded capacity and household-name customer relationships give Digital a big market advantage, the defensive aspect of the acquisition is hard to ignore. Several new heavyweight players recently entered the market, while previously existing competitors have been going after the hyper-scale deals more aggressively than before. That’s the reason Kerrigan disagrees with an assessment by some analysts that the merger between Digital Realty and DuPont Fabros would reduce competition and help balance price control in the data center market. Had the deal taken place three or four years ago, Kerrigan said, he would agree with that assessment, “but I don’t agree with it now. There’s too many new players right now.” One example is Digital Bridge, a company formed last year that has been making one acquisition after another, including most recently a deal to acquire Vantage Data Centers, one of the top hyper-scale players in the extremely tight Silicon Valley market. Digital Bridge is led by Michael Foust, founder and former CEO of Digital Realty. Another example is Iconiq Capital, a wealth-management firm that serves some of Silicon Valley’s richest tech entrepreneurs, including Facebook founder Mark Zuckerberg, LinkedIn chairman Reid Hoffman, and Napster co-founder Sean Parker. Iconiq registered a data center investment arm, Iconiq DC Management, last year and has already invested in T5 Data Centers, a wholesale data center provider. There’s also CloudHQ, a wholesale data center provider founded last year by Hossein Fateh, co-founder and former CEO of DuPont Fabros. Like DuPont, CloudHQ builds massive-scale data centers and goes after massive-scale cloud deals. Also going after hyper-scale deals is Infomart Data Centers, a company formed in 2014 as a result of a merger between Dallas Infomart and Fortune Data Centers. Infomart’s most well-known customer is LinkedIn. Existing players CyrusOne and RagingWire have been very successful in winning hyper-scale deals. Both have substantial presence in Northern Virginia; CyrusOne recently entered Chicago with acquisition of the massive CME Group data center there and started construction of a Silicon Valley campus last year; RagingWire is close to announcing entry into both Chicago and Silicon Valley markets, according to industry sources. The hyper-scale data center market is hotter than ever, and Digital Realty’s acquisition of DuPont Fabros, while making an already massive player even more massive, is not likely to cool things down. This is Digital’s third major acquisition in about two years’ time. In the fourth quarter of 2015 it closed the $1.9 billion Telx deal, entering in a big way the retail colocation and interconnection market in the US, and last year it acquired eight data centers in Europe from Equinix for $874 million, adding substantial retail and interconnection capacity across the Atlantic. The DuPont Fabros deal, expected to close in the second half of the year, solidifies Digital Realty’s position as one of the world’s top landlords for cloud giants, but that doesn’t mean cut-throat competition for hyper-scale deals will ease going forward. (Comment on this)
9:47p	Urbacon Opens Fully Leased 10MW Data Center Near Toronto Urbacon Data Center Solutions announced that it has opened a fully leased data center in Richmond Hill, Ontario, backed by funds from the largest capital development network in Quebec—Fonds immobiliers de solidarité FTQ (Solidarity real estate funds). DC1 is part of a five-facility digital campus in the Barker Business Park outside Toronto that will be developed in tandem with its customer growth. According to the company, groundbreaking has begun on DC2, but it did not announce the opening date. DC1 can provide 10MW of power capacity and capable of reaching an ultra-low PUE of 1.1 or less, according to the company. Using a patented free air cooling system that draws cold air from outside using a rotating wheel made out of corrugated aluminum that absorbs and then rejects server heat, the campus’ potential once built out to 500,000 square feet will offer up to 80MW of power. Additionally, white space will become available in a new state-of-the-art data center in downtown Montreal on July 1, for which the Quebec financier is also a partner. Built as an 43,000-square foot extension to an existing four-story building, it is the first purpose-built dedicated colocation facility to be open within Montreal’s financial district. “The Canadian market provides unique opportunities to international companies with its lower dollar and security advantages over the US,”  Marco Mancini, president of UDCS, said in a statement. “With facilities in both Montreal and Richmond Hill, UDCS and FTQ are creating a Canadian data center eco-system right in the heart Canada’s high-tech corridor.” (Comment on this)
10:00p	Is Your ERP Ready for Digital Transformation? Amy Eager is Technical Solution Architect, North America, for IFS. A 2016 Panorama Consulting Solutions study revealed that enterprise resource planning (ERP) projects took an average of 21 months to install, with 57 percent of these projects experiencing timeline overruns. A span of almost two years can be a long time when disruptive change comes in weeks or months rather than years. Any executive that has been around enterprise software implementations knows not only that new systems can take a long time to implement, but can take almost as long to change or update with new technologies. Drivers of Change Digital transformation is a broad term, covering every aspect of changing technology in a business. But the businesses that succeed are those that can keep up with accelerating change of processes enabled by new technologies. Key enterprise software such as ERP, enterprise asset management (EAM) and asset performance management (APM), must evolve to address the need for digital transformation. The traditional monolithic enterprise solutions may have suited past business models, but are now often unable to implement new technologies quickly or support companies as they branch out into new geographies with different regulations to consider. To help address this need, enterprise solutions a decade ago started to move to a more flexible service-oriented architecture (SOA) that can be developed and deployed in a modular fashion. One of the main strengths of a layered architecture is the ability to separate each function. For example, the presentation tier doesn’t need to pull information from, or store it in, the database or execute on the business logic, it just supports the various user interfaces accessed by end users. This makes it easier to develop, test and maintain the application as changes made in one layer do not directly affect any others. Enter Layered Application Architecture The next step after a move to service oriented architecture (SOA) is layered application architecture. This further increases enterprise agility and reduces the amount of time and resources enterprise software consumes–time and resources that can be better invested elsewhere. With SOA, components within the structure are organized into layers, with each one performing a specific function–the presentation tier to present data to the end user, the business logic tier to process information, and the data storage tier to hold the information. But modern layered architecture takes this one step further by creating separate layers that can contain modifications to the code or customizations that users can make to how their application performs. This approach now makes the adoption of new business processes and technologies a lot easier. With layered application architecture, companies can use powerful personalization and configuration features to tailor the enterprise solution to fit their specific work processes and routines as needed. For example, businesses can create user-defined fields and custom events to notify specific employees via pop up message on tablets or smartphones that a customer order just placed is below an approved margin. This can even be extended by providing a warning or even stopping a customer order, which previously would have to have been done via modifications. Still Need to Modify Source Code? Retiring modifications is where layered application architecture comes into its own. But in situations where there is no way around modifying the source code, layered architecture segregates these modifications into their own layers, they no longer need to be rewritten or uplifted. All that is required is simple testing, which takes a fraction of the previous time required. Layered architecture also handles country- or region-specific localizations, meaning organizations can rapidly expand into new regions while region-specific functionality is implemented in each geographic area. By getting rid of the need for modifications, layered application architecture can help lower total cost of ownership (TCO) as remaining modifications can be easily moved over to new versions without being rewritten Laying the Foundation for the Future Layered application architecture isn’t just a business tool, it is a key ingredient for digital transformation. With this type of supporting software, waiting an age for the latest updates and functionalities that drive business change is a thing of the past. Only with agile enterprise software can businesses adjust without jeopardizing security and with minimal disruption. Companies can now take full advantage of smarter operations and better-informed decision making to keep up with whatever changes come their way in the future. Opinions expressed in the article above do not necessarily reflect the opinions of Data Center Knowledge and Penton. Industry Perspectives is a content channel at Data Center Knowledge highlighting thought leadership in the data center arena. See our guidelines and submission process for information on participating. View previously published Industry Perspectives in our Knowledge Library. (Comment on this)

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