1.
Digital ICC: Attracting Investors
What Colocation Providers Need to Know
Confidential Property of Schneider Electric
March 14, 2018
Greg Jones, Schneider Electric
Steve Wallage, BroadGroup Consulting

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Page 2Confidential Property of Schneider Electric |
What is the Digital ICC?
• International Colocation Club is our annual live annual event
where we bring together colocation providers from around the
globe to hear from industry experts, analysts, and peers
insights to maximize their business success
• Digital ICC brings the International Colocation to the web with
quarterly webcasts, content and more.
• Hosted by Schneider Electric, Digital ICC brings colocation
providers insights from leading industry voices on business
and technology topics for colocation providers
• Stay tuned to our blog for more announcements and check out
recordings of International Colocation Club presentations

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Page 3Confidential Property of Schneider Electric |
Attracting Investors: What Colocation Providers Need to Know
Today’s presentation will cover
 How investors are assessing colocation providers
 Different types of investor strategy and positioning
 Actual case studies
Steve Wallage
Managing Director
Greg Jones
Vice President, Strategy, Cloud &
Service Providers segment

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HOW TO SUCCEED IN DATA CENTERS
- AND GET INVESTOR SUPPORT
STEVE WALLAGE
MANAGING DIRECTOR, BROADGROUP CONSULTING
steve.wallage@broad-group.com
Information in slides comprises data and opinions from BroadGroup Consulting

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Why BroadGroup Consulting
• Internal databases and tracking of markets from 2002
• Co-location, hosting, IaaS
• Research reports – quarterly tracker, annual analyses
• DCE8 – Western European analysis, June 2018
• Strategic consulting - focus across Europe, Africa and Asia
• Work for investment agencies, operators/providers, vendors, investors, users
• Conducted over 30 commercial due diligence projects in
sector

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Is there sustainable demand for data
centers?
Will this specific business/financial model
work in the face of increasing competition?
Two key investor questions

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And this demand is accelerating globally – supported by government initiatives

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But will this particular investment work - typical commercial due diligence breadth
1. Broader market issues and opportunities/threats/long-term evolution
2. Specific analysis of local market, supply/demand, addressable market
3. Specific analysis business plan
- Market positioning, offerings, execution, pricing, channels etc
4. Financial plans
- Overview costs, fill rate, pricing, P&L
5. Technical plans
- High-level analysis
6. Management
7. Customer and prospect analysis – typically including 15-30 detailed interviews
8. Strategy and recommendations on future plans
9. Other aspects including possible exit
Often alongside:
Financial due diligence
Legal due diligence
Technical due diligence

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Looking at some key aspects and our experience with real projects
• People
• Competitive positioning
• Revenue and margin forecasts
• Getting cloud right
• Future opportunities, growth and potential investor exit

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People
“If didn’t totally trust the management,
wouldn’t invest”
- Private equity investor

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- A serial entrepreneur who has done it before
- An experienced chairperson from outside the business
- Specific vertical market expertise that is key to business
People – good examples from previous investment projects

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- ‘Distracted’ other businesses/ventures
- Short-term contracts/unclear commitment
- Skills to build business up to today but not the skills needed from
2019 and beyond
People – poor examples from previous investment projects

13.
Competitive positioning
• Does the current and planned competitive positioning make sense?
• Is it backed up by evidence from financials?
• Is it backed up by industry trends/evidence other markets?
• Is it backed up by user interviews?
• Is it defendable and sustainable?

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- Can you match the growing competition such as Equinix?
- Can you make the expected returns given the pricing, terms and
expectations of the hyperscale cloud players?
- Can you meet their cost expectations…..
Example competitive positioning – focus hyperscale cloud

15.
- (Despite our initial concerns) Product roadmap based on
customer requirements as so close to key customers
- Strong understanding of the gaming market with excellent
relationships and partnerships in the sector
- Regional (second city) approach and key relationships local IT
players, avoiding direct competition major players
Competitive positioning – good examples from previous investment projects

16.
- Claims of relationships and Letters of Intent from Middle Eastern
customers, with no proven agreements or track record
- Claiming to have unique approach with no evidence of customer
acceptance of approach
- Looking to cut costs by using unproven suppliers
Competitive positioning – poor examples from previous investment projects

17.
Revenue and margin forecasts
• Forecasts are often treated sceptically – looking for hard evidence and
proven track record
• Monthly management accounts and detailed customer pipeline
assessment
• Often see claimed revenue growth and margins much higher than industry
average/competitors – is this justifiable and sustainable?
• Often only one forecast with little/no contingency – investors like to see
different scenarios

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“Our investors only care on four things at every management
meeting – deals signed and their terms/length, pricing and
covenants”
Co-location player
Revenue and margin forecasts – investor interest

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- Higher margins achieved due to under-developed market/limited
competition
- Higher margins due to concentration of telcos/cloud players at
their data center
- Higher revenue growth forecasts supported by user interviews
showing planned customer growth
Revenue and margin forecasts – good examples from previous investment projects

20.
- Sudden growth in new cloud business line despite no track record
or expertise in the area
- Revenue growth to come from M&A despite lack of identified
targets or track record of execution
- High current EBITDA margin due to unsustainable factor – in this
case, not paying market rate to property owner
Revenue and margin forecasts – poor examples from previous investment projects

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Getting cloud right
• Many different potential approaches (see success stories) but it is key to data center
success – supporting customers in their cloud strategies
• Key is that it is providing value to customers, and is sustainable and defendable
• Differentiation can come from specialist skills and professional services
• Success comes from understanding customers – why they use the data center? How can
they be better supported? And this is a key area in customer interviews in the due
diligence

22.
- Automated services that were easy to deploy with quick payback
- Specific services such as DRaaS and Security As A Service that
complement existing services
- Specific vertical market offering – example was in insurance
where had to overcome industry concerns and incorporate
specific regulatory requirements
Getting cloud right – good examples from previous investment projects

23.
- Trying to use co-location salespeople to also sell cloud services
despite no experience in the sector
- Competing directly against public cloud offerings
- Offering managed hosting and cloud solutions with limited
experience and relationships
Getting cloud right – poor examples from previous investment projects

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Future opportunities, growth and potential investor exit
Now that they have our money, we are going to watch very carefully what they do with it
Private equity investor

25.
- Expanding offerings – and number of services that can be sold –
to a core and loyal group of customers
- Being a first mover in an emerging market that larger players are
likely to want to enter in the next 2-3 years
- Developing differentiated offering in new sector such as edge
Future opportunities, growth and potential investor exit – good examples from previous investment
projects

26.
• Microsoft developing ‘hub and spoke’ DC strategy, and Azure IoT
Edge
• AWS Edge Network Locations in Asia
Chennai, India (2); Hong Kong, China (3); Kuala Lumpur, Malaysia; Manila, the Philippines; Melbourne, Australia; Mumbai, India
(2); New Delhi, India; Osaka, Japan; Perth, Australia; Seoul, Korea (4); Singapore (2); Sydney, Australia; Taipei, Taiwan; Tokyo,
Japan (7)
• EdgeConnex estimates that response time improves 50-85% for
users who bypass the public Internet, opting for direct cloud access
via Megaport from an EdgeConneX Edge Data Center
And the hyperscale players also now want to be at the edge….

27.
- The ‘build it and they will come’ approach
- Expanding in a new country where the provider has very little
experience and limited relationships
- Assuming a trade buyer will come in at some point….
Future opportunities, growth and potential investor exit – poor examples from
previous investment projects

28.
“The industry will largely consolidate around 3-5 global players”
David Ruberg, December 2017
How many trade buyers will there be?

29.
- Many investors ‘struggle’ with data centers – their background is often real
estate where there are detailed data points and comparative numbers – the
investor often needs educating
- Does the investor know the sector? What have they done with previous
investments?
- What is risk profile and focus of the investment company (fund)?
- What is the duration/timeframe of the investor/fund?
- What is their approach/involvement with investments?
Final thought – the right type of investor

30.
HOW TO SUCCEED IN DATA CENTERS
- AND GET INVESTOR SUPPORT
STEVE WALLAGE
MANAGING DIRECTOR, BROADGROUP CONSULTING
steve.wallage@broad-group.com
Information in slides comprises data and opinions from BroadGroup Consulting