Startup On Data Center Buying Spree

data center

MDH, Fairfax, Va., last week acquired Stargate, an Oak Brook, Ill.-based data center operator offering co-location, managed servers and managed services from an 86,000-square-foot data center near Chicago.

The acquisition follows two similar moves in the last 12 months or so. MDH last December acquired Data393, an Englewood, Colo.-based 30,000-square-foot data center. And last October it purchased InteleNet, an Irvine, Calif.-based data center with 55,000 square feet of space, of which 30,000 was originally built out. The company has since built out an additional 12,000 square feet.

MDH was founded in June 2007 by a number of former telecom executives with an average of 20 to 25 years of experience with large data center infrastructures, said CEO Peter Stevenson.

Stevenson, who until 2006 was CEO of Globix before it was sold, said he and his fellow MDH co-founders saw an increase in demand for data center-based services corresponding with a constraint in supply as customers started turning to third-party data centers to help cut the capital costs of building such facilities.

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The outsourced data center market is a fast-growing one, with an annual growth rate in North America of between 15 percent and 18 percent, Stevenson said. However, he said, the market is very fragmented. "There's no dominant player," he said. "I thought there's an opportunity here."

There was. Stevenson and his fellow co-founders received undisclosed investments from two investors, Great Hill Partners and Catalyst Investors, and set out on a strategy to acquire and consolidate data centers in tier-one and tier-two markets.

The company's business model is simple and focuses on providing only three things, Stevenson said.

The first is co-location space, power and bandwidth for midsize customers and for divisions of larger customers.

The second is managed services, including storage, backup, load balancing, security and "remote hands," which Stevenson said are MDH personnel inside the data centers who are available to assist customers with their requirements.

The third is full turnkey hosting of IT processes on the company's IBM-based blade server infrastructure.

"Our approach is definitely customer- service-driven," Stevenson said. "We have industry-leading SLAs [service level agreements] and invest as needed to stand behind them," he said.

The one thing MDH does not provide is custom services. "We don't do custom work," Stevenson said. "We want to invest in business where we have revenue without having a lot of really smart people tied up in a project."

MDH looks for stand-alone data centers with a minimum of 20,000 square feet of space and room to double their footprint with additional capital investments if needed to meet growing customer demand.

The growth of the company by acquisition is important to customers who what to work with an organization that can provide multiple data centers, Stevenson said.

"It provides opportunity for growth," he said. "But it also provides opportunities for disaster recovery and business continuity. Customers in the past hesitated to implement disaster-recovery plans. But government is now pushing disaster recovery. With multiple sites, this means more opportunities for us."

As it evaluates future acquisition possibilities, MDH looks for established companies with a good track record, Stevenson said. It is not interested in purchasing companies that require a turnaround and does not want to build new "greenfield" data centers. "There's too much risk," he said.