Digital convergence starts now

Back in 2017, Marc Ganzi, who currently serves as CEO of global investment firm Digital Colony alongside Ben Jenkins, CIO, opened the TowerXchange Meetup Americas with a provocative keynote on the convergence of digital infrastructure, highlighting Digital Bridge’s – which since then has become part of Digital Colony – progressive role in the emerging digital infrastructure industry. Presenting an integrated vision of digital infrastructure service provision - was Ganzi sharing a vision of the future? Or was that vision at risk of diluting the valuation of traditional steel and grass tower companies? Here is a storyline of Digital Bridge’s evolution and expansion across the global digital infrastructure ecosystem.

At the time of his TowerXchange Meetup Americas 2017 keynote, Digital Bridge owned / managed and operated a portfolio of six companies across the U.S., CALA and Mexico, which were generating more than US$300mn in site cash flow. The company declared over US$6.7bn in committed (invested or uninvested) capital and was seen by many as an intriguing outlier – following an enticing and yet unproven business model, too complex and diverse for most to replicate.

Leaping forward – two years on – the convergence of towers, fibre, small cells and data centres is becoming increasingly evident and the Digital Colony venture seems to be the living proof that embracing that convergence isn’t optional anymore. Digital Colony and Digital Bridge are now working as one and managing nearly US$20bn worth of assets.

2013 – Mexico Tower Partners (MTP) was created as a result of the merger of several infrastructure companies, and thanks to the combined efforts of Digital Bridge and the Macquarie Mexico Infrastructure Fund (MMIF). The MMIF was Macquarie’s first managed fund in the region and was the first peso-denominated fund solely focused on investment opportunities in Mexican infrastructure projects.

Since then, MMIF exited the venture and MTP went on to become the largest private towerco in Mexico, with nearly 2,500 sites at the time of writing.

2014 – After Mexico, Digital Bridge targeted the United States and launched Vertical Bridge, which soon became a disruptive consolidator in the U.S. market and to date owns / manages more than 268,000 sites across the country.

2015 – Digital Bridge acquired ExteNet Systems (for an undeclared amount, expected to be in excess of US$1bn). At the time of the deal, ExteNet owned a portfolio of approximately 10,000 nodes (deployed or under construction) and the company’s website now claims that the number has risen to over 30,000 DNS nodes (operational or not).

Kevin Smithen, who at the time served as an analyst for Macquarie Securities but has since moved to Digital Colony as Managing Director and Head of Strategy, was quoted by financial newspapers stating that “Ninety-nine percent of ExteNet’s fiber network is owned. As a reminder, monthly leases are US$700-US$800 per tenant with ten to 15-year leases and carriers pay for 25% to 40% of the network construction costs.” It is worth noting that among ExteNet’s investors – all of whom exited the venture with the acquisition – was SBA Communications, who had owned almost 20% of ExteNet since 2010.

In the same year, Digital Bridge entered South America with the creation of Andean Tower Partners (ATP), which operates in Colombia, Peru and Chile and enjoys a unique strategic partnership with ISA-Internexa, allowing the towerco to access a wide utility network. Additionally, in 2017, ATP acquired local towerco Torres Unidas, further strengthening its position in the region.

2016 / 2017 – Digital Bridge made its debut in the data centre world with the acquisition of North American enterprise data centre operator DataBank from Avista Capital Partners. To date DataBank owns over 15 data centres in key cities including Dallas, Indianapolis, Atlanta and Minneapolis.

The deal represented a clear sign not only of Digital Bridge’s (and afterwards of Digital Colony’s) consolidation strategy, but of the expansion of a new trend across the U.S., with the likes of Verizon and CenturyLink all looking at selling their data centres and specialised firms and funds seeking to expand their portfolios. In fact, just a few months later in 2017, Digital Bridge became the owner of Vantage Data Centers, the largest wholesale data centre landlord with locations in Silicon Valley and Quincy (Washington).

For the acquisition of Vantage, Digital Bridge was part of a wider consortium including the Public Sector Pension Investment Board (PSP Investments) and TIAA Investments, who at the time had over US$1tr worth of aggregated assets under management.

Further deals in the data centre space in 2017 included the acquisition of C7 Data Centers and individual sites in Cleveland and Pittsburgh from 365 Data Centers.

2018 – Jumping forward, Digital Bridge launched Digital Colony, a global investment firm focused on mobile and internet infrastructure, combining Digital Bridge’s industry expertise and the investment know-how of Colony Capital, a leading real estate and investment management firm.

2018 also marked the entrance of Digital Colony in Europe, with the acquisition of Finland’s leading nationwide digital terrestrial television (DTT) and radio broadcasting tower infrastructure network Digita. Additionally, Digita is Finland’s largest independent tower network owner, providing infrastructure solutions to the country’s largest mobile network operators. 

Later in the year, Digital Colony shifted its attention to the UK with its investment in Stratto, a leading provider of DAS and small cell networks, focused on providing an Infrastructure-as-a-Service (IaaS) model to all MNOs across the country.

Following the acquisition of Stratto, Digital Colony continued its UK expansion with the purchase of Opencell, which at the time had over 2,000 live cells across 100 networks and worked with all four major operators in the country.

2019 – This year was intense for Digital Colony, with a combination of U.S. and international deals, the closing of its inaugural fund and an unprecedented volume of investments in towers, data centres and metro fibre as well as the acquisition of Digital Bridge by Colony Capital. Lets review this year’s deals in more details.

In April, Digital Colony further enhanced its UK presence with the acquisition of iWireless Solutions, a leading small cell service provider set to complement the StrattoOpencell’s expertise with outdoor products and know-how. iWireless Solutions’ experience included some remarkable outdoor connectivity examples such as the City of London, the London Olympic Stadium and Twickenham Stadium.

Just a month later, Digital Colony and EQT Partners announced they had reached an agreement to acquire fibre network owner Zayo Group Holdings. As announced in a press release by Zayo, following the deal shareholders would receive US$35 in case per share (a 32% premium to the previous six-month price average), in a transaction valued at US$14.3bn, including the assumption of US$5.9bn of Zayo’s net debt obligations.

The deal is expected to close in H120 and was listed as one of the top five global buyout deals of H119.

During the same month – and one should at this point wonder if the Digital Colony team ever sleeps – the company announced the completion of the purchase of Cogeco Peer 1, a leading provider of co-location, network connectivity and managed services for US$720mn. The acquired portfolio included over 3,300km of dense metro fibre across Toronto and Montreal as well as data centres in North America and Europe.

In June, Digital Colony announced the final closing of its inaugural fund, Digital Colony Partners, with US$4.05bn in commitments, while in July, Colony Capital acquired Digital Bridge for US$325mn. At the time of the deal, Digital Bridge managed nearly US$20bn of global digital infrastructure directly, through the Digital Colony Partners fund, and pro forma through Digital Colony Partners’ pending acquisition of Zayo Group Holdings, Inc. (NYSE: ZAYO). Combined with Colony’s portfolio, the merger created an entity with nearly US$60bn worth of assets.

After the summer, Digital Colony made yet another acquisition in Canada, with the purchase of Beanfield Technologies, in November. Beanfield is an independent bandwidth infrastructure provider, serving MNOs, enterprises as well as multi-dwelling units (MDU).

The acquired portfolio – which is 100% owned by Beanfield – includes 366km of dense metro fibre in Toronto and Montreal as well as 76,000 strand km of fibre infrastructure, 541 on-net locations (367 commercial, 161 MDUs and 13 data centres).

This long list of deals in the wider digital infrastructure space, encompassing Europe, North America and CALA, takes us to the most recent deal announced by Digital Colony this month, marking the entrance of the company in Brazil – one of the most attractive infrastructure markets in South America.

On December 10, Digital Colony announced the acquisition of Highline do Brasil II Infraestrutura de Telecomunicações from Pátria Investments. The deal follows the 2017 acquisition by SBA Communications of the original Highline portfolio, which included approximately 970 sites (a combination of rooftops, small cells and some macro towers) as well as a solid build-to-suit pipeline. Following the SBA deal, Highline do Brasil II went on to build an additional pipeline of sites (approximately 200 had already been built back in March 2019) and BTS orders, with particular emphasis on partnerships and exclusivity agreements with shopping malls, real estate owners and hospitals to provide indoor connectivity.

Marc Ganzi and Ben Jenkins, now CEO and CIO of Digital Colony respectively, have been working together successfully since 2005, when Ganzi was the Founder and CEO of Global Tower Partners (GTP) and Ben Jenkins led Blackstone’s purchase of a majority equity interest in the towerco. Jenkins then went on to become the Chairman of GTP and the two quintupled the business in just three years thanks to their mix of strategic vision, roll up, and financial savvy. GTP was acquired by American Tower in 2013, for US$4.8bn.

Since then, Ganzi and Jenkins co-founded Digital Bridge and have now embarked on the Digital Colony’s adventure alongside a team of M&A and digital infrastructure experts. The company is on a mission to not only consolidate existing businesses within the broad digital ecosystem – mainly data centres, het-net, fibre and towers – but also to prove that innovation and diversification can indeed pay off.

Back in 2017, during his keynote at the TowerXchange Meetup Americas, Ganzi highlighted that data centres, small cells and fibre can recreate the “tower magic”, emphasizing that the growth pattern of the digital infrastructure sector was indeed compelling, with an estimated five-year CAGR (2017-2022) of 10% for data centres, 6.4% for towers and 4.9% for fibre.

Since then, these numbers have been adjusted for the period 2019-2023 by IT research firm Technavio and now look like this.

- 17% CAGR for data centres

- 17% CAGR for towers

- 10.63% CAGR for fibre

(Source: Technavio)

All segments are expected to exceed the original expectations but 40% of growth in the tower sector will come from the APAC region rather than from the U.S. or other mature markets such as Europe. With this in mind, players in the sector might see a shift towards a converged digital infrastructure model as an imperative, especially for those with aggressive growth targets. On the other hand, focusing exclusively on the traditional towerco business model might remain an attractive option for those towercos eyeing stable returns and de-risked operations in mature markets.

This could effectively create a bifurcated industry consisting of innovators on one hand and traditionalists on the other – attracting two different pools of investors and shareholders and serving adjacent but not always overlapping sets of customers, with innovators targeting broader and multi-faceted sets of customers beyond traditional MNOs.

TowerXchange is increasingly aware of what Ganzi then defined as a “transformative moment” – with data demand forcing players to push the boundaries of their deployment efforts – and is committed to providing enhanced information, data sets and analyses on the shift that some towercos are making.

Click here to read the 2017 article based on Marc Ganzi’s keynote.