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USA’s Digital Realty Trust set to acquire controlling stake in Teraco

SOUTH AFRICA – Data centre operator Digital Realty Trust (DRT) has announced that it would acquire a majority stake in Africa-based Teraco, valuing it at about US$3.5 billion, as it taps into fast growth in Africa, driven by the pandemic.

In a statement Digital Realty, which has more than 280 data centres across the world, said it would buy the 55% stake in the Johannesburg-based data centre services provider from a consortium of investors including Berkshire Partners and Permira.

The deal is expected to be about 1% dilutive to Digital Realty’s core funds from operations (FFO) per share in 2022 and add to it after 2023.

Digital Realty CEO William Stein said the deal would add regional scale with a “network-dense portfolio in South Africa’s most strategically important metros”.

Home-working as governments try to contain COVID-19 has increased the need for data centres, or physical spaces that house computers to store and process data. In a series of multi-billion-dollar deals, infrastructure and real estate funds have entered the sector. read more

Africa’s data centre market has seen particularly rapid growth from a relatively low base as companies see local cloud storage as a way to save costs by renting storage rather than building their own servers or relying on other countries.

Data consumption on the continent is also rising as carriers and tech companies roll-out fibre-optic cables to provide more reliable and faster internet. With this comes the need for secure local data hosting.

Teraco operates seven data centres in Johannesburg, Durban and Cape Town, serving more than 600 clients, including global internet companies.

Based in Johannesburg and established in 2008, Teraco is Africa’s largest data centre services provider. The company offers vendor-neutral colocation and other related services in secure and resilient data centres.

The company operates seven high-quality facilities with 75 megawatts of critical power load, serving more than 600 clients, including global Internet companies, across six core ecosystems – connectivity providers, managed service providers, cloud, content, enterprise and financial services.

Combination providing Teraco continued access to capital to grow. The Teraco and NAPAfrica brands, which have a global reputation for exceptional service, quality, and client focus, will continue.

Being backed by a global leader will enable Teraco to access skills and knowledge from the Digital Realty global platform and continue to grow the Teraco ecosystem.

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 Chief Executive Officer Jan 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. 

After closing, Digital Realty will own approximately 55% of the total equity interests in Teraco, while the remaining 45% will be held by a consortium of existing shareholders, including management, Berkshire Partners LLC, Permira, van Rooyen Group, Columbia Capital, Stepstone Ventures and the Teraco Connect Trust.

The transaction is expected to close in the first half of 2022 and is subject to customary closing conditions.

Goldman Sachs is acting as financial advisor to Teraco and Weil, Gotshal & Manges LLP and ENSafrica are serving as legal advisors to Teraco. 

Solomon Partners is acting as financial advisors, and Latham & Watkins LLP and Bowmans are acting as legal advisors to Digital Realty.

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