Warburg Pincus bets on China’s $15bn data centre market

The buyout firm will be acquiring data centres in the country alongside Beijing-headquartered 21Vianet Group.

US-based private equity firm Warburg Pincus and Nasdaq-listed Chinese IT infrastructure company 21Vianet Group are teaming up to invest in wholesale data centres and built-to-suit data centre projects in China.

Under the agreement, Warburg will provide capital to back the projects, while 21Vianet will seed the joint venture with four existing internet database centres valued at more than $300 million.

Warburg declined to comment on how much capital it would invest in the strategy.

The fund manager will own 51 percent of the equity interests of future projects, with 21Vianet will own the remaining 49 percent. Target transactions are expected to be completed during the first half of 2017, Warburg said.

The firm's investment will be made via Warburg Pincus Private Equity XII, which closed in 2015 on $12 billion. Warburg is also in the process of raising a China-focused fund with a hard-cap of $2 billion.

“Data centres have been one of the best performing real estate asset classes globally and one supported by compelling secular trends in China,” Ellen Ng, managing director of Warburg Pincus, said. “Our partnership will create significant synergies by combining 21Vianet's deep industry know-how and client resources with Warburg Pincus' international resources, financing channels and industry networks in both the real estate and TMT sectors in China.”

China's data centre market, which includes IT infrastructure, power management systems, cooling solutions and general construction, is expected to grow from almost 100 billion yuan ($15 billion; €13.5 billion) in 2016 to $20 billion in 2020, according to a report from market analyst TechNavio.

In addition, the Chinese government's heavy investments in the sector, especially in its 'internet plus' strategy – the application of the internet in conventional industries such as manufacturing and energy – will bolster investments in cloud-based services, big data analytics and the internet of things or the interconnectivity of everyday objects.