The year just ended saw an unprecedented wave of consolidation in the data center industry as the world's largest colocation providers looked to keep pace with demand from enterprises and public clouds by acquiring regional competitors.
The $20 billion in mergers and acquisitions closed in 2017 far exceeded spending from the two preceding years combined—with 2015 seeing roughly $6 billion in activity through 17 deals, and 2016 roughly $10 billion through 28 deals, according to a new report from Synergy Research.
The surge to 48 data center consolidation deals in 2017 is part of a trend that will likely continue for some time, wrote Synergy's chief analyst, John Dinsdale, in the report.
"We expect to see much more data center M&A over the next five years," Dinsdale said.
Consolidation is being driven by enterprises divesting from their own infrastructure, and cloud services providers looking to rapidly scale into new geographies. Four more deals totaling $2.6 billion in value are already pending, according to Synergy.
The vast majority of the 2017 spend came from Equinix and Digital Reality. The industry's two leaders paid out between them $19 billion on acquisitions, even before counting Equinix' deal for Metronode, an Australian company.
Digital Reality paid $7.6 billion for DuPont Fabros in the largest single purchase of 2017.
Equinix has made major acquisitions around the world, Synergy noted, while Digital Realty has focused on the United States and Europe. CyrusOne, Peak 10, Digital Bridge, NTT, Carter Validus, Iron Mountain, Cyxtera and Elegant Jubilee also took part in last year's M&A surge, according to Synergy.
Regional data center operators looking to succeed in a landscape dominated by wholesale giants that will only continue growing bigger must focus on offering differentiated services, the leaders of two boutique providers told CRN.
Lief Morin, CEO of Key Information Systems, said his Los Angeles-area data center business is experiencing a "microcosm of that larger trend" in market conditions that's driving consolidation among the global colocation providers.