You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 

Insights

Chart of the Week: The Nikkei index has been in decline over the past six months as investors grapple with rising interest rates in Japan. Historically low interest rates made Japan a private equity hotspot for many years with firms such as KKR, Carlyle, Bain Capital, and Blackstone all stationing dedicated funds or teams in the country. Private equity investors will have to learn to navigate a new interest rate regime in Japan. (Read More)

More Insights

• The Unexpected Impact of Family Offices on PE Portco Operations (Read)
• Are PE-Backed Companies More Likely To Go Bankrupt? It’s Complicated. (Read)
• Apollo: “You Can’t Talk in the ESG, Alphabet-Soup Jargon” to CFOs (Read)
• Exits Are More Sensitive to Interest Rates Than Buyouts (Read)
• History Shows Interest Rates Alone Have Marginal Impact on Buyout Activity (Read)

Spotlight

Complex computation. Bain Capital has struck a deal with Aquila Group to acquire an 80% stake in its data center subsidiary, AQ Compute. According to a press release, the investment volume of the deal will be multiple billions of euros.

AQ Compute operates data center portfolios across Europe, which Bain plans to expand to accommodate the AI boom and rising demand from ‘hyperscalers’ or large tech companies. 

While this is Bain’s first European data center deal, it is not its only data center deal. The firm acquired ChinData Group in 2018, a pan-Asian data center with locations in China, India, and Southeast Asia.

Bain’s primary value creation plan at ChinData has been to locate data centers in rising markets. It is expanding ChinData’s presence in Malaysia, for example – a country adjacent to Singapore, an economic hub whose data center capacity has basically been saturated and has only recently lifted a moratorium on new builds. 

It seems that AQ Compute’s value creation plan will also be location-specific but for a very different reason. Bain’s investment in AQ Compute is aiming “to develop and operate sustainable data centers for hyperscale and AI customers across Europe.”

To create truly sustainable data centers – which deep-pocketed customers have a high demand for – the makeup of the electricity grid in the area of operation is key. AQ Compute’s flagship sustainable data center is located in Oslo, Norway – a country that runs on 98% renewable energy due to its vast hydropower resources. 

Get real. Traditionally, data centers have been thought of as a real asset, with infrastructure funds and real estate funds dominating the private markets space. When it comes to Bain’s AQ Compute deal, this holds.

According to a source close to the deal, the capital for the transaction will be coming from Bain’s Special Situation Europe Fund. While this is not Bain’s Real Estate Fund, it is still a real assets-focused strategy with a non-distressed mandate. Special Situations is, according to Bain’s website, a “cross capital structured investment” strategy meant to be “complementary to private equity and credit portfolios.” 

However, according to this source, Bain considers data centers to have a private equity-style risk and return profile rather than infrastructure-style. 

Bain declined to comment on the transaction.

To PE, or not to PE? How traditional buyout funds have cashed in on the data center craze has varied widely between managers. 

Some engage from their infrastructure platforms – notably, Blackstone, KKR, EQT, CVC, Carlyle Macquarie, and Apollo. Warburg Pincus, TPG, and Blue Owl engage from their real estate platforms.

Others without robust real assets platforms have found new pockets of capital. While Bain uses its special situation fund, some managers are cool with considering data centers to be a part of their basic buyout strategies. Silver Lake, Advent International, and Permira are good examples.

Buyout News​​ 

What else has been going on in buyouts?

First, the Buffalo Bills are reportedly in talks with Arctos Partners to sell a minority stake in the franchise. If the deal goes through, the Bills would be the second NFL team to announce its intentions to take on institutional capital following the NFL’s rule change in August, after the Miami Dolphins made its nearing sale with Ares public. 

Additionally, CVC has joined KKR to fund SuperStruct, a European music festival operator, in its expansion. KKR bought the company earlier this year for $1.4 billion.

And finally, Shore Capital and Silver Lake are in discussions to merge Southern Veterinary Partners and Mission Veterinary Partners – both currently owned by Shore. The merger would happen using a recapitalization from Silver Lake, securing $4 billion in new equity and an additional $3 billion in secured debt and preferred equity, making the overall deal worth $8.6 billion.