DigitalBridge mulling second continuation fund

Chief executive Marc Ganzi also noted how tower pricing has ‘probably lost two to three turns in value’, affecting its agreement for GD Towers.

The first stage of DigitalBridge’s first continuation fund for data centre platform DataBank was completed this past quarter, with the firm recapitalising the asset by selling “over 35 percent” of its stake in the company, according to the firm’s Q3 earnings. The successful continuation fund process means DigitalBridge is looking to copy that strategy with its data center asset, Vantage SDC, chief executive Marc Ganzi revealed on the firm’s earnings call.

“Vantage SDC continues to remain on our balance sheet. It’s not in a continuation fund vehicle today. It is in a permanent capital vehicle,” Ganzi said. “We do maintain operating control of that asset and we’re thinking around a couple of different ideas on how we would transition that asset into our investment management platform. But I think what you’ve seen in this quarter is the final sort of piece in the puzzle around… what we believe is the asset-light approach to owning and operating digital infrastructure.”

DataBank – first acquired by DigitalBridge in 2016 – was put into a perpetual continuation vehicle this summer, when DigitalBridge brought on new investors EDF Invest and Swiss Life Asset Management. At the time, the two companies paid a collective $1.2 billion to existing investors for the stake. In its Q3 earnings report, DigitalBridge revealed that that number now stands at $1.5 billion, although the exact equity breakdown remains unknown.

Also revealed in the earnings call was that a post-quarter agreement with Canadian institution IMCO, expected to close in Q4 for $450 million, has taken DataBank’s total recapitalisation to $2 billion, $1.3 billion of which was taken from fund LPs. All in all, DataBank’s recapitalisation has established a 30x EBIDTA valuation for the company and added $317 million in corporate liquidity to DigitalBridge during Q3 2022.

For fundraising as a whole, DigitalBridge expects to exceed its yearly target, adding $700 million to its core strategy and $400 million to its credit strategy in Q3, with Ganzi stating that the group expects to formalise first closes on the two strategies in Q4.

This isn’t the only deal that will have a big impact on the firm in the coming months. Its bid to acquire a 51 percent stake in Deutsche Telekom’s German and Austrian tower assets with Brookfield for an enterprise value of €17.5 billion, at a 27x EBITDA, is likely to close at a slightly lower premium, with Ganzi divulging: “Tower pricing, I think, is on a private market basis; it’s probably lost maybe two to three turns in value. Assets that would have traded at 31x to 32x a year ago today are trading at 26x to 27x. I think… when we do close the Deutsche Telekom transaction, that will be closer to 23x to 24x, and that’s a premium asset”.

Ganzi is also somewhat reserved on the fibre sector, which comprises about a fifth of DigitalBridge’s portfolio. “Fibre continues to be kind of a wildcard… I think investors are discerning on fibre between what are consumer-facing and month-to-month 30-day cashflows versus what are long-term cashflows where you’ve got 5-, 10-, 20-year IRUs and long-term agreements. So there’s a lot of discrepancy in fibre valuations today”.