Data center operators are fixated on the “five nines” — an expectation that they’ll keep the infrastructure behind financial markets, e-commerce and artificial intelligence running 99.999% of the time.
So as news rippled out last month that a CyrusOne facility in Aurora, Illinois, that handles trillions of dollars in trading volume each day went down for 10 hours, industry insiders were stunned.
To them, it was an eternity, and the failure at the data center outside Chicago is a black eye for CyrusOne’s backers.
KKR & Co. and Global Infrastructure Partners, now a unit of BlackRock Inc., announced their acquisition of CyrusOne in 2021 for $15 billion. They secured billions more in financing for the firm as they deepened their foothold in a booming industry increasingly dominated by the likes of Blackstone Inc. and Blue Owl Capital Inc.
Data centers, the physical embodiment of the AI revolution, are one of the hottest bets in private markets. But as the debate rages over whether the boom is a bubble — debt levels and valuations are climbing — the challenges for Wall Street can be much more tangible: from cooling the space to literally keeping the lights on.
KKR pursued the investment for years and was the driving force behind the deal as it worked to rope in various bidding partners.
CyrusOne touches several of the private equity firm’s major units. Last year, KKR led part of a $7.9 billion loan to the data center operator, co-arranged by its own capital markets team and funded by its Global Atlantic insurance arm alongside some of its clients. And KKR owns its CyrusOne stake through its infrastructure and real estate funds, as well as Strategic Holdings, a unit that holds long-term investments on the firm’s balance sheet.
All that cash wasn’t enough to stave off disaster at Aurora, an older property in CyrusOne’s portfolio of more than 55 operational data centers. A series of missteps by facilities workers at a site running on older systems led to a major outage for CME Group Inc. Such incidents typically require the data center operator to compensate the client, according to people familiar with the industry.
CME entered a 15-year lease at the Aurora data center in 2016, according to a prior announcement.
“They will need to double down on becoming a resilient data center because this is a failure that happened and shouldn’t have,” said Andrej Danis, head of AlixPartners’ Americas telecommunications and digital infrastructure practice.
KKR and GIP said they’re confident in CyrusOne’s strategy and that it’s poised to benefit from growing demand.
“Under our ownership, CyrusOne has accelerated its expansion, enhanced its competitive position while deepening its commitment to innovation, and reinforced its standing as a premier developer and operator of mission-critical data centers,” Waldemar Szlezak, KKR’s global head of digital infrastructure and a CyrusOne board member, said in an emailed statement.
Will Brilliant, GIP’s global head of digital infrastructure and a CyrusOne board member, echoed Szlezak’s remarks in a separate statement.
“We fully support CyrusOne, as we have done throughout our ownership, to invest significant resources to maintain a leading position as a provider of critical data center development and operations services for its customers,” Brilliant said.