The Caisse de dépôt et placement du Québec has earned a windfall profit by selling its stake in Canadian data-centre consolidator eStruxture Data Centers Inc. as part of a $1.8-billion recapitalization.
Fengate Asset Management of Toronto, an early investor in Montreal-based eStruxture, is leading a consortium buying $700-million of stock from other investors, including the Caisse’s entire position, and investing $300-million into the business to fuel its expansion.
Company management and early backer Jonathan Wener, the chairman of real estate investment firm Canderel, are rolling over more than $500-million of their stake and selling a minority of their shares. The Fengate-led group includes Swiss private equity firm Partners Group Holding AG, Britain-based Pantheon Ventures and the Laborers’ International Union of North America Pension Fund of Central and Eastern Canada. The consortium will end up with more than 66 per cent of eStruxture, funding a third of the deal, or $600-million with debt, and valuing the company’s total equity at $1.5-billion.
Caisse spokeswoman Kate Monfette would not disclose the institutional investor’s gain on the deal, but eStruxture CEO Todd Coleman said it was a “home run” that generated “significantly north” of a three-times return for the fund management giant. Ms. Monfette said the Caisse was “very satisfied” with the return, adding that the exit was “part of a regular portfolio rebalancing exercise.”
EStruxture owns 15 data centres in Montreal, Toronto, Calgary and Vancouver, most of them picked up in five acquisitions from sellers including Shaw, Gaz Metro Plus and Aptum Technologies. The company also built a facility in Calgary and paid $150-million to buy the Montreal Gazette’s defunct printing plant in Old Montreal and turn it into a data centre. It has almost 1,000 customers in Canada and dozens of other countries, including hyperscaling giants from the tech world, movie studios, telecom companies and others with business in Canada.
The company was founded in 2017 by Mr. Coleman after he sold his previous data-centre company, Cologix Inc. He felt Canada was an ideal place to buy and build data centres to serve a growing market that has been fuelled by remote work, online trading, video streaming, 5G technology, artificial intelligence and other online activities. Energy was cheaper here, particularly in Quebec, and the colder climate provided a more economical way to help bring down the temperature in vast buildings containing racks of heat-generating computers.
“At the time everyone was backhauling data back to the United States, traversing in and out of major markets, while less data was localized near the eyeballs” of users, Mr. Coleman said. “We had a fundamental belief that was about to change.” Subsequent geopolitical concerns regarding where data is stored and the strength of the U.S. dollar against the loonie were a plus. “It was and continues to be a fantastic time to be in the data-centre industry in Canada,” he said.
Others agree. Tech giants such as Amazon and Google have invested heavily in data centres here, along with foreign companies Digital Colony Management, Equinix Inc. and Compass Datacenters LLC. CBRE’s North American Data Center Trends report stated there was a record 3,078 megawatts worth of data centres under construction in primary markets in the second half of 2023, up 46 per cent from 2022. Other data-centre investors include Blackstone, TPG, Brookfield Infrastructure Partners and Manulife Investment Management.
Mr. Coleman, who is based in St. Petersburg, Fla., said that despite raising US$460-million in equity and US$750-million in credit facilities prior to this deal, eStruxture has been “capital constrained” for much of its life. After interest rates spiked and capital markets cooled, he said, investors last year decided the company’s ideal path was to keep building and raise equity for its next financing, with Fengate putting together a special-purpose vehicle for the deal.
Fengate has emerged as a leading Canadian infrastructure development financier over the past two decades, backed largely by labour-sponsored funds representing construction unions. The firm, led by Lou Serafini Jr., the son of the founder, manages $8-billion in capital across real estate, infrastructure and private equity assets.
It is in one of the three groups bidding to build a high-frequency rail network between Montreal and Toronto and was involved in groups that bid unsuccessfully to buy Freedom Mobile and build Toronto’s Eglinton light rail transit line. It has led the development of health care facilities and a detention centre in Southern Ontario and a light rail transit project in Edmonton. It co-owns the chain of ONroute service centres along Ontario’s 400-series highways. Its infrastructure projects in the United States include a wind farm in Texas, a Denver arena, public schools in Maryland and a car-rental facility at Los Angeles International Airport.
“The first thing we say is, ‘Does this have tailwinds, and is it a desirable asset class for our client base?’” Mr. Serafini said. “The answer to both is yes” in the case of eStruxture. “We have this thesis we’ll provide safe, secure, stable data storage to our customers, and we’re very excited about the growth potential. That brought us to the conclusion to re-up and raise new capital.”
Editor’s note: An earlier version of this story said Fengate Asset Management was leading a consortium buying $1.5 billion of stock from other investors. In fact, Fengate is buying $700-million of stock from other investors and the total value of the equity after the recapitalization transaction will be $1.5-billion. The story has been corrected and updated.