M&A Inflection Points

Communications Infrastructure

“Communications Infrastructure will underpin the future. It's pivotal.”

Madonna Park, Global Head, Comms Infrastructure


How is the communications industry responding to burgeoning demand? Where are the key growth opportunities? What's driving M&A within the sector?

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By Madonna Park
Published May 26, 2021 | 3 min watch
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Key Points

  • Valuations in the sector remain very robust, demand for opportunities remains high.
  • High-growth companies are those focused on the cloud segment and network connectivity.
  • Sector growth is driven by organic development and through M&A, based on significant demand for land, powered land and regional M&A.
  • The comms infrastructure sector will underpin the future, whether it’s 5G, AI, automated cars, or the data that needs to be stored as a consequence.

Vito Sperduto: In the past year, I think we’ve all experienced a very different environment vs. any that we have seen in our careers previously. Madonna, I'd love to get your perspective on what you've experienced and how that informs your view of the outlook?

Madonna Park: I cover the communications infrastructure space globally for RBC, specifically around data centers and fiber. It’s a sector I’ve covered for over a decade. Over the past year, the pandemic has brought attention to the sector. More than ever, it’s seen as core infrastructure.

Valuations remain very robust, demand for opportunities in the sector, both from strategic and financial investors, remains very high. I don't expect for any of that to ease going forward, certainly not in 2021.

“Over the past year, the pandemic has brought attention to the comms infrastructure sector. More than ever, it’s seen as core infrastructure.”

Madonna Park, Global Head, Communications Infrastructure Investment Banking

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Vito Sperduto: The communications infrastructure sector has clearly benefited from the work-from-home environment. Have you seen a related change in the types of deals that are a focus for the sector?

Madonna Park: Companies that are seeing the highest level of growth and demand are those that are focused on the cloud segment and network connectivity. It’s obviously easier to grow in a market if you have an existing presence.

We see significant demand for regional M&A. There’s also a considerable demand for land, and for powered land – which is an important growth-factor in this sector. So growth is both organic, through development, and through M&A.

Vito Sperduto: ESG [Environmental, Social, and Governance] is a big topic for all of our clients. Data centers could account for around 10% of global electricity use by the year 2030.

Madonna Park: Today, customers are much more demanding that ESG is core to every solution. Not that they're necessarily going to pay more for it, but they're more demanding of it. Operators are much more conscious of the need to deliver it.

Obviously, to the extent that they can actually use green power, they do so. I think it’s the large technology customers that will drive these initiatives more and more.

Vito Sperduto: Madonna, given the franchise that you've built globally and the perspective you have across multiple geographies, what are you seeing in terms of regulatory impact on the sector?

Madonna Park: There are different levels of regulatory scrutiny around the world. Data sovereignty is certainly a very relevant topic. I think what it does is to limit consolidation to some extent, depending on who the end-owners or end-investors are. But on the flip side of that, it drives opportunities for growth across new markets as each large jurisdiction needs its own data storage.

Larry Grafstein: Scale is a driver of consolidation in many sectors. What's behind that, and the size of the customers who are the heaviest users of data centers?

Madonna Park: I would say 70-80% of the growth in the sector has been driven by a handful of customers: such as Amazon, Google, Microsoft, and Oracle. There is demand from these customers to work with fewer operators.

So, from the customer perspective, there's a push towards consolidation. As the industry matures, eventually it will get down to a smaller number of players than are present today.

“70-80% of the growth in the sector has been driven by a handful of customers such as Amazon, Google, Microsoft, and Oracle.”

Madonna Park, Global Head, Communications Infrastructure Investment Banking

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Larry Grafstein: Do you see any of the hyperscale customers, the Amazons, the Facebooks, trying to take control of their own data center infrastructure? Or is it just too complicated for them even to consider that?

Madonna Park: That’s something that's possible going forward, and I think there’s certainly been interest on the part of some of those hyperscalers. It makes sense to the extent they are the sole tenant in a facility. I think it's less likely where there are other tenants in a facility, where the hyperscaler in question would then have to become a third-party operator of a data center.

Vito Sperduto: You've been working with your clients for a considerable amount of time, you've seen the ongoing evolution of their companies and the space they operate within. How does that inform your view of things going forward?

“The comms infrastructure sector will underpin the future.”

Madonna Park, Global Head, Communications Infrastructure Investment Banking

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Madonna Park: It’s an extremely active sector. There is much going on and it’s truly global in nature. The comms infrastructure sector will underpin the future. It’s pivotal whether in relation to 5G, AI, automated cars, all of the great technology and innovation that’s emerging, and the data that needs to be stored as a consequence. The companies that I work with, whether they’re data-center companies or fiber companies, they enable all of this. It’s very exciting to know that we’re playing a pivotal role in the continued consolidation and evolution of the sector.

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