HMC Capital Makes Strategic Move in Data Centre Market with $400 Million Acquisition
David Di Pilla, founder of HMC Capital
Image Source: HMC Capital
In the competitive landscape of Australia's data centre industry, HMC Capital Ltd (ASX: HMC) is making significant strides to establish itself as a formidable player. Following in the footsteps of industry giants like NextDC Ltd (ASX: NXT), HMC Capital is leveraging its recent capital raise to expand its portfolio through strategic acquisitions.
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HMC Capital's Strategic Acquisition
HMC Capital, formerly known as Home Consortium, has announced a substantial acquisition as part of its ambitious growth strategy. The company has entered into an agreement to acquire iseek, a co-location data centre platform boasting 6 megawatts of installed capacity. iseek operates seven facilities across Queensland, South Australia, and New South Wales, serving over 500 customers, including government bodies, enterprises, and hyperscale tenants.
This acquisition underscores HMC Capital's commitment to transforming underperforming properties into high-value, multi-tenant retail spaces. By integrating iseek into its portfolio, HMC Capital aims to enhance its offerings and capitalize on the growing demand for data infrastructure.
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Formation of DigiCo REIT
The latest acquisition of iseek is a cornerstone in the formation of HMC Capital's Global Digital Infrastructure Platform, DigiCo REIT. DigiCo REIT is poised to become a significant player in the ASX market, targeting the digital infrastructure sector. With the addition of iseek, DigiCo REIT will encompass 13 data centre properties, matching the number of locations held by NextDC, a leading name in the industry.
DigiCo REIT is structured to provide investors with exposure to a diversified portfolio of data centres, leveraging HMC Capital's expertise in property transformation and management. This strategic move positions DigiCo REIT to tap into the burgeoning demand for digital infrastructure.
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Financials of the Deal
HMC Capital's acquisition of iseek comes at a valuation of $400 million, representing 19 times iseek's projected operating earnings for 2025. The financial structure of the deal includes an upfront payment of $150 million, with the remaining $250 million to be fulfilled through a scrip offer in DigiCo REIT's initial public offering (IPO).
This financial arrangement allows HMC Capital to optimize its capital deployment while providing investors in DigiCo REIT with a stake in a robust and growing portfolio. The deal highlights HMC Capital's confidence in the long-term profitability and scalability of the data centre sector.
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Comparing with NextDC
With the inclusion of iseek, HMC Capital's DigiCo REIT now manages 13 data centre properties, positioning it on par with NextDC, which operates a similar number of locations. This parity marks HMC Capital as a serious contender in the ASX-listed data centre space, traditionally dominated by established players like NextDC.
The competitive landscape is set to intensify as HMC Capital leverages its acquisitions to offer a diversified and expansive portfolio. Investors may find this rivalry beneficial, potentially driving innovation and value creation within the sector.
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Rationale Behind Focusing on Data Centres
HMC Capital's pivot towards data centres is underpinned by several strategic factors:
Stable Income Profile: Data centres typically offer long-term contracts and predictable revenue streams, making them attractive for investment.
Diversified Customer Base: With over 500 clients spanning government, enterprise, and hyperscale tenants, HMC Capital mitigates risks associated with customer concentration.
Megatrend in Data Creation and AI: The exponential growth in data generation, driven by advancements in artificial intelligence and digital services, fuels the demand for robust data infrastructure.
A recent McKinsey report indicates that approximately 70% of new data demand is attributable to 'advanced-AI-workloads'. Consequently, global data centre demand is projected to grow between 19% and 22% from 2023 to 2030, aligning with HMC Capital's strategic focus.
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Market Outlook and Growth Prospects
The data centre industry is poised for substantial growth, driven by increasing data consumption and the proliferation of AI technologies. HMC Capital's DigiCo REIT is strategically positioned to capitalize on this trend, aiming to achieve a 4% distribution yield. Additionally, the management team identifies significant opportunities for earnings growth through enhanced utilisation, with approximately 28% of the installed capacity currently unallocated.
As DigiCo REIT enters the ASX market, investors can anticipate exposure to a sector with strong growth drivers and resilient demand fundamentals.
HMC Capital's Performance
HMC Capital's aggressive acquisition strategy has yielded impressive results, with the ASX 200 stock experiencing a remarkable 131% increase over the past year. This surge reflects investor confidence in the company's strategic direction and its ability to execute large-scale deals effectively.
The successful raising of $300 million in late October provided the financial backbone for these acquisitions, enabling HMC Capital to swiftly expand its footprint in the data centre market.
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Company Background
Founded in 2016 by David Di Pilla, HMC Capital has evolved from repurposing former Masters Home Improvement stores into multi-tenant retail spaces to becoming a diversified alternative asset manager. The company focuses on sectors such as healthcare, digital infrastructure, and real estate.
Source: The Motley Fool, HMC Capital
