Google and Amazon are the latest and the biggest companies so far to join the list of giants vying to buy the data centre business of Tata Communications. As per a report by the Economic Times, the deal could be worth $650-$700 million, i.e, about Rs 4,261.4 crore to Rs 4,589.2 crore.
Other buyers include private equity fund companies like the Blackstone Group, Carlyle, KKR, Bain Capital and Advent International and they are looking to buy upto 74% of stake in the business. “The initial round of bids have already come and we are in the midst of advancing the process,” said one of the sources of the ET.
Tata’s data centre business is spread over 44 locations in India and abroad including US, UK and Singapore. According to an investor presentation by the company last month during the quarterly earnings report, the business added Rs 436 crore to Tata Communications’ FY15 revenues and has about 27% EBITDA (earnings before interest, tax, depreciation & amortisation).
However, Tata communications is now looking forward to sell a majority stake in order to focus on its core business as a data carrier as well as to reduce its net debt which had climbed upto 9,178 crore ($1.4 billion), according to that investor presentation.
Plus, the company also reported a net loss of Rs 34 crores for the first quarter ended in June as compared to 22 crores for the same period last year. Consequently, it has lately been pursuing efficiency measures, cutting costs and selling assets and divesting some parts of its business to improve the balance sheet.
The data centre business is the second such divestment after it recently sold its South African telecom unit Neotel to Vodacom for $565 million.
On the other hand, as we are entering into an era where more and more companies are moving towards outsourcing of IT infrastructure to cloud companies, the data centre business has emerged as a highly lucrative opportunity.
This is even more valuable for companies such as Google and Amazon who are looking forward to establish their strong foothold in the Indian market. Till date, most Data Centres for US companies have housed primarily in the US itself. However, ever since India’s startup ecosystem surged upwards, requirement of more and more back-end infrastructure led most bigger startups to establish data centres of their own, due to lack of home nodes for Google or Amazon.
Google already has a partnership with Tata as Google Cloud Interconnect is connected with Tata Comm’s IZO Public platform that enables companies to set up cloud computing facilities. Amazon too is one of the leading data centre operators in the world with its Amazon Web Service (AWS) being one of the most trusted and preferred cloud services for IT infrastructure. But again, most of its is concentrated in the U.S.
Apart from Google and Amazon, Singapore based Sembcorp Industries reportedly has also shown interest in the deal and already had a few rounds of discussions with the Tata Group management regarding the deal.
The news of a deal in making, spiked up Tata Comm.’s shares by over 3% on BSE today.