QTS Realty Trust’s planned $10 billion sale to Blackstone is yet another data M&A play, this time at the intersection of technology and real estate. Data storage infrastructure should prove an increasingly attractive theme for large companies in search of regional hubs. That, in turn, could make the industry attractive to private equity in the long run.

The transaction comes on the heels of an acquisitive year for real estate deals. Opportunistic fundraisings have taken off in response to pandemic-related dislocations, sparking dealmaker interest in everything from last-mile warehouse space to real estate logistic technology, as Mergers & Acquisitions reported previously.

QTS may be something of a sector outlier, according to Credit Suisse analysts. Its data center infrastructure offering is evenly split between high growth hyperscale locations for large customers and higher return multi-tenant locations, providing solid financial performance. Staged contract rolloff and a deep roster of clients also contribute to its stable earnings profile. 

Size is also an advantage here. QTS’ 785 acres are partially occupied by facilities that “have the capacity to nearly double our sellable data center raised floor space without constructing or acquiring any new buildings,” according to its February annual report. And that’s before the remaining acreage is developed. 

Analysts estimate the deal valuation represents 29.5x QTS’ 2021 Ebitda, which might not even be a full multiple given QTS’ pipeline. Impressive backlog growth from $93 million in Q4 to $152 million in Q1 and Credit Suisse expectations of future growth, another private equity firm may have room to bump Blackstone’s $78/share offer, analysts argue in a note out yesterday. 

Still, there are concrete signs data center plays will remain attractive for years to come. Let’s take a look at the deal structure, to start. Blackstone is acquiring the company through Blackstone Infrastructure Partners, Blackstone Real Estate Investment Trust, and other perpetual capital funds. The split is in part designed to play to the respective strengths of fund teams in physical and digital assets, a person familiar with the deal tells Mergers & Acquisitions. The long-term vehicles will enable investment over years without a 7-year exit horizon, which the source says is a signal of plans to invest in QTS’ growth flexibly. 

An increasingly digital world creates secular headwinds for data storage. Private equity rivals might well circle comparable strategic players with higher growth like Digital Realty Trust (NYSE: DLR), or peers with relatively cheap valuation like CoreSight Realty (NYSE: COR) and Switch Inc. (NYSE: SWCH).

Read more of our coverage of the deal: Blackstone Purchases QTS Realty Trust.