The Middle-Market Ecosystem Powering Hyperscale Data Centers

Driven by increased demand for computing power, AI technology, and a 29% CAGR of global data generation through 2035, hyperscale data centers have become mission-critical assets in the global economy. The backbone supporting this growth extends far beyond major industry players. Middle-market businesses play a crucial role in the ecosystem that enables hyperscale data center development, and investors are eager to participate in this section of the market.

Industry Outlook
Among all data center segments, the hyperscale market is forecasted to experience the highest growth rate with a 20-25% CAGR through 2030. Leading indicators of continued growth include increases in preleased and under construction capacity and large capex projections by hyperscale majors indicating long-term investment.

Microsoft, Oracle, Meta, Amazon, and Google project to spend a combined $333bn on data center, AI, and computing infrastructure in 2025.

The Middle-Market’s Role in the Supply Chain
While the major hyperscale operators garner headlines, middle-market businesses provide the essential infrastructure and services that make these projects possible. Specific areas of investor interest include:

• Construction and Engineering Services: Electrical and mechanical engineering; cable, racking, and wireless infrastructure installation; other specialized contracting.
• Power and Cooling Solutions: Power generation and backup systems; liquid cooling, air distribution, and other HVAC solutions; renewable energy and microgrid solutions.
• Connectivity and Hardware Components: Cable and cable components; racking, switches, and enclosures.
• Operations and Maintenance: Security, monitoring, and access control; managed IT services; predictive maintenance; energy efficiency and regulatory compliance consulting.

Considerations for Sellers
Many of these businesses have experienced substantial growth in recent years. For owners and operators that are considering a sale or recapitalization, demonstrating the sustainability of this growth is key to maximizing value and increasing certainty of close.

• Customer Embeddedness – With a limited universe of hyperscalers, proving the depth of your customer relationships will drive value. Having MSAs in place, multi-level relationships with decision makers, a history working at multiple campuses, recurring MRO revenue, and a strong backlog and pipeline are indicators of embeddedness that ultimately de-risk inherent customer concentration and increase value.
• Margin Sustainability – Revenue may be trending upward, but are margins being maintained? Investors are as concerned with margin sustainability as they are with revenue growth.
• Human Capital Strategy – In some geographies, human capital levels are not able to support the planned growth of hyperscale infrastructure. A human capital strategy that aligns with geography-specific backlog demonstrates to investors that growth forecasts are achievable.

Considerations for Buyers

• Unique Hyperscaler Attributes – Each hyperscaler is not created equal. Barriers to entry, margin opportunity, and contract structures vary by operator. Understanding how these unique dynamics apply to your target’s customer base can be a crucial area of diligence.
• Debt Availability – While the equity story may be compelling, lenders will bring a more skeptical eye to the rapid growth and limited customer universe inherent in this sector. This may lead to lower leverage availability and less optionality compared to more mature industries.

Featured Engagement: Team LINX

Industria Partners advised the management shareholders of Team LINX on their sale to Guardian Capital Partners in December 2024.

Led by its founder-owners since 2003 and based in Denver, CO, Team LINX is a critical player in the domestic hyperscale data center build-out. Providing project management, cable and rack installation and integration, and ongoing “Day 2” services, the Company is a key partner to mission critical data center customers nationwide.

Guardian has substantial experience in digital infrastructure services and products, with Team LINX representing the third platform investment in the sector.

“Industria went above and beyond in all aspects of our engagement. We began working with them 3 years ago through their Enterprise Value Accelerator (EVA) program to look at how to strategically better our business and it significantly improved the future of the Company, putting us in a position to go to the market. Guardian is the right partner to fuel Team LINX’s growth and we are absolutely thrilled at the outcome of this transaction. We would not be in this place without Industria, and there are hundreds of families at Team LINX that will benefit from the expertise they have provided. Industria is one of the, if not the, most significant partnerships Team LINX has had in the past decade.”

– Erik Isernhagen, CEO, Team LINX

Industria Partners was formed by a team of highly experienced strategic advisors in early 2016 to focus on the M&A and capital needs of entrepreneurs, family-owned businesses, and private company investors. Industria services climate, infrastructure, industrial, and energy companies at every point across the business cycle. With a thorough understanding of capital markets and the complexity of their relationship with the industries we serve, Industria delivers high touch senior level expertise, analysis, and execution, every day.

Please contact Tim Troha or Julia O’Loughlin to discuss the value drivers and market dynamics of your specific business or other market insights gained from our recent transaction experience.