Digital Realty to buy majority stake in South African colocation services supplier Teraco

Digital Realty (NYSE: DLR) says it has agreed to acquire a 55% stake in Teraco, a South African supplier of carrier-neutral colocation services. Existing investors, which include management, Berkshire Partners LLC, Permira, van Rooyen Group, Columbia Capital, Stepstone Ventures, and the Teraco Connect Trust, will retain the remaining ownership stake. The transaction values Teraco at approximately $3.5 billion and is expected to close in the first half of this year, subject to customary closing conditions.

Digital Realty asserts the acquisition will make it the leading supplier of colocation and related services in Africa when paired with the connectivity hubs in Nigeria and Kenya the company already operates. Teraco operates seven facilities in the South African metros of Johannesburg, Cape Town, and Durban. The company boasts more than 600 customers, including more than 275 connectivity providers, more than 25 cloud and content platforms, and approximately 300 enterprises. Teraco also hosts seven on-ramps to global cloud service providers in Johannesburg and Cape Town and provides direct access to seven subsea cables in Durban on the east coast and Cape Town on the southwest coast.

Digital Realty expects the number of submarine networks it will support in Africa will grow, based on planned new undersea cable systems expected to come online in the next few years. Teraco’s existing facilities also are positioned for growth. Teraco’s current footprint offers a combined 187 MW of total planned capacity, including the seven in-service facilities totaling 75 MW and another under development that will provide 19 MW. However, Teraco also owns land adjacent to its Johannesburg and Cape Town campuses that Digital Realty suggests will support the development of up to 93 MW of additional capacity.

"This highly strategic transaction immediately cements Digital Realty as the leading colocation and interconnection provider in Africa, a region experiencing rapid digital transformation," said Digital Realty CEO A. William Stein. "Teraco is the industry leader in South Africa and the continent's connectivity hub. This investment will enhance our ability to serve customers on a global basis by adding significant regional scale with a premier, network-dense portfolio in South Africa's most strategically important metros. Teraco will also advance our strategy of increasing exposure to highly connected, network- and carrier-dense facilities to enhance our global coverage and connectivity capabilities."

Teraco’s current management team, including CEO Jan Hnizdo, will continue to remain in place. "We are excited to enter our next chapter by joining forces with Digital Realty to create a truly global, scaled platform serving our customers in Africa and beyond,” Hnizdo commented. “Our combined platform will be uniquely positioned to serve the full customer spectrum with the ability to support their growth around the world. We look forward to working with the Digital Realty team to extend our state-of-the-art data center and connectivity solutions to capitalize on the favorable industry trends and tremendous market opportunity."

The deal is the second recent major acquisition in the African data center space. Equinix announced last month that it agreed to buy MainOne (see “Equinix to buy MainOne for Africa reach”).

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