As the world continues to lean into digital transformation, investment opportunities in adjacent services grow more attractive. While dealmaking activity in data center cooling technology has been slow, KKR has identified this space as a growth platform for the future. Here’s why.
Earlier this month, KKR acquired CoolIT Systems, a provider of scalable liquid cooling services for demanding computing environments including assets like data centers. The firm provides the liquid cooling technology used by a variety of customers through its proprietary hardware that enables the step-change in efficiency and performance through the shift of air to liquid cooling.
“We have invested more than $17 billion in digital infrastructure since 2011 and the data center industry has been a critical part of that,” says Kyle Matter, a managing director and head of KKR’s Global Impact team in North America. “Data center cooling is a space that we have been following for some time given that these assets are expected to consume eight percent of the world’s energy by 2030 and cooling can account for up to 50 percent of their energy use on average.”
The firm explains that liquid cooling, as opposed to air cooling, is able to transfer 3,500 times more heat due to liquids’ ability to cool the heat sources directly rather than cooling the entire space.
Matter notes that the investment in cooling technology provides a compelling mix of economic savings and sustainability benefits for data center operators focused on both retrofitting and green fielding additional capacity. The efficiency gains as a result of cooling include improving equipment reliability and lifespan, decreasing operation costs, lowering energy demand and carbon emissions, reducing water consumption and allowing for a higher server density than traditional air-cooling methods.
While the world becomes more reliant on the complex computing provided by data centers, cooling technology becomes a natural extension of that demand. But KKR is early to the game. According to data provided by Pitchbook, there have been 11 domestic private equity investments in the cooling technology space dating back to 2017.
However, while there may be a lag for private equity movement into the cooling market, Seth Morganstern, a managing director at Stout, a Chicago-based investment bank spoke to Mergers & Acquisitions about the burgeoning investment interest in IT infrastructure. “We see broad-based interests from a range of institutional investors across the IT services continuum.”
He notes that the large addressable market for private equity investment in data centers and the related services stems from offerings like IT services, added reseller systems integrators, IT managed services and digital engineering.
Specifically, KKR says that the need for efficient cooling technology will continue to grow as the demand for data hosting and processing accelerates from a rise in both Artificial Intelligence and high-performance computing applications.
KKR might be onto something. A recent Gartner report named liquid cooling a key innovative technology for sustainability. It predicts that 75 percent of companies will have a data center sustainability strategy by 2027, an increase from five percent in 2022.
“This is an important problem that CoolIT is a critical enabler to solve,” Matter says.
