Carlyle Group to acquire 25% stake in Airtel's data centre biz for $235 mn

The post-money enterprise valuation of Nxtra Data Ltd is approximately $1.2 billion

US-based Carlyle Group on Wednesday said it will invest $235 million (approximately Rs 1770 crore) for approximately 25 per cent stake in Nxtra Data Ltd, an arm of Bharti Airtel engaged in the data centre business.

The post-money enterprise valuation (or valuation immediately after investment) of Nxtra is approximately $1.2 billion and Carlyle will hold a stake of approximately 25% in the business upon completion of the transaction, with Airtel continuing to hold the remaining stake of approximately 75%, Bharti Airtel said in a statement.

The transaction is subject to the necessary regulatory approvals, including approval from the Competition Commission of India.

Experts feel that the companies have begun unlocking the valuations of their internal assets and it is a step in the right direction.

“The telecom companies first started by sale of tower assets, now it is the data centres due to the digital push and next would be fiber assets. It is the race to demonetise the assets as it is the need of the hour because as long as the debt is there it will be like a sword on the head of the companies and in the absence of a predictable revenue asset sale is one of the options,” Hemant Joshi, an independent telecom expert said.

Delhi-based Nxtra offers secure data centre services to leading Indian and global enterprises, hyperscalers, start-ups, SMEs and governments. Nxtra’s nation-wide portfolio of 10 large data centres and more than 120 edge data centres provides customers with co-location services, cloud infrastructure, managed hosting, data backup, disaster recovery, and remote infrastructure management.

"Rapid digitisation has opened up a massive growth opportunity for data centres in India and we plan to accelerate our investments to become a major player in this segment. We are delighted to have Carlyle as a strategic partner in this exciting journey, particularly given their experience in this industry, and look forward to working with them," said Gopal Vittal, MD & CEO (India and South Asia), Bharti Airtel.

Neeraj Bharadwaj, Managing Director of the Carlyle Asia Partners advisory team, said, “India is set to become one of the largest markets in the world for digital services. Airtel, with its proven track record of solid execution and customer focus, is well positioned to leverage the potential growth of data centres in India. We look forward to collaborating with Airtel to unlock the full potential of Nxtra.”

US-based Carlyle has prior experience in data centre ownership through investments in Coresite in the US and Itconic in Spain.

Nxtra, which is building multiple large data centres across India, will use the proceeds from the deal to scale up its infrastructure, the companies said.

India is seeing a surge in demand for data centres as more businesses choose cloud computing, and consumer demand for digital services such as smartphone entertainment continues to grow, they added.

Cloud and entertainment services represent the next revenue frontier for traditional telecom carriers like Airtel, as voice and data rates in India remain among the cheapest in the world.

Carlyle invested $700 million during the first half of 2020, excluding $235 million for 25 per cent stake in Airtel's data which was announced today. In 2019, the company invested $698 million over three deals which rose to $700 million during the first half of 2020, according to Venture Intelligence Data.

"While Carlyle - being one of the most experienced global PE investors in India (starting in 2000) - has made several investments in the IT & BPO Services sectors (including Cyient, Elitecore Technologies and Newgen Imaging Systems), the deal with Airtel-Nxtra is the first significant investment by the firm in the core telecom / data center business," says Arun Natarajan, Founder, Venture Intelligence.

The 2020 deals include $210 million in SeQuent Scientific and $490 million in Piramal Pharma.

The PE firm which invested $361 million across three deals in 2015 took a pause in 2016 before it returned in 2017, when the firm invested $444 million across five deals. In 2018 again it slowed down as it invested only $18 million in one deal and picked up the phase in 2019, when it invested $698 million across three deals.

Besides Airtel data center investment, the other top investments by Carlyle in India includes $200 million in Financial Services firm Destimoney (in February 2015), $260 million in payment services firm SBI Cards & Payment Services (in December 2017), $653 million SBI Life Insurance (March 2019) among others.