(WEB HOST INDUSTRY REVIEW) — For businesses in just about every industry, 2009 was marked more by the state of the economy than by any other individual factor. The recession from which we may or may not have now emerged wreaked wide and well-reported havoc on the automotive, banking and insurance industries, and did varying degrees of damage to other businesses.
According to most anecdotal reports, web hosts fared comparatively well. While growth all but dried up in many cases, many hosts claimed to have stayed pretty close to even. Part of the explanation for that is that the argument for outsourcing became easier to make in a climate of widespread belt-tightening.
The recession’s real blow to the hosting business came at the higher end – among the companies that are building and maintaining data centers – where a skittish investment community led to disappearance of available debt financing. Hosting companies looking to build or expand had to look at potentially less attractive financing options.
This was the topic of greatest interest at the Tier 1 Research Hosting Transformation Summit held in Las Vegas in September (and, not coincidentally, the broader discussion here is the subject of an article that appeared on page 12 of the most recent issue of WHIR magazine).
At the event, Peter Hopper, president of DH Captial, delivered a presentation in which he claimed that we might be seeing a return of debt financing to the web hosting market. That claim was, at the time, validated by the news that DH Captial had closed a deal for $20 million in debt financing for data center operator and hosting company SoftLayer.
Less than a week earlier, data center firm Switch and Data had announced that it had secured $100 million in debt financing (a deal that, obviously, came before Switch and Data was later acquired by Equinix for nearly $700 million.
Since September, there has been a great increase in debt lending to the hosting business, validating Hopper’s claims and breathing new life into the pace of construction within the data center market.
In November we cataloged a further shift in the perception of the hosting business among institutional investors, as many investment advisors responded to rackspace’s third-quarter earnings report by increasing their ratings on the company.
And in November and December, we saw a series of institutional debt lending to data center builders that included major funding for several providers, specifically earmarked for data center expansion projects.
In late November, CyrusOne announced that it had secured $150 million in loans from a group of banks that included TD Securities, RBC Capital Markets, SunTrust Robinson Humphrey and SG Americas, to expand its data center facilities, which are localized in Texas.
At roughly the same time as the CyrusOne news, Horizon Data Center announced that it had secured $75 million in funding from Ballast Point Ventures. The company plans to use the money to fund its “tri-coastal” data center expansion plan.
And in December, DuPont Fabros announced that it, too, had raised $150 million in funding for the expansion of its data center expansion. The money will fund the ongoing expansion of the company’s massive ACC5 data center project in Ashburn, Virginia.
About Liam Eagle
Liam Eagle has worked as a contributor to the Web Host Industry Review since its inception in 2000, and as editor since 2003. He has been editor of the WHIR's print magazine since its launch. His daily involvement in the gathering and reporting of Web hosting news and his regular interaction with Web hosting leaders gives him an uncommonly broad appreciation of the issues and tends facing the business. Through his WHIR blog, Liam spots Web hosting trends and offers opinions on the industry-wide impacts of major developments and the motivation behind big announcements. Follow him on Twitter @liameagle
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