The rise of AI and continued use of cloud computing has increased the need for data centers. That’s allowed private equity firms to play in the category.
In April, Montage Partners exited its Southwest Data Products, selling the company to Charlotte-based steel maker Nucor for $115 million. Founded in 1986, SWDP is based in San Bernardino, California, and is a maker of data center accessories. Montage is headquartered in Scottsdale, Arizona.
PE Hub caught up with Jordan Tate, co-managing partner at Montage, about how the firm helped grow the company, what differentiated SWDP as a company and why data centers are so attractive to private equity firms.
SWDP is a manufacturer of data center physical infrastructure. This includes airflow containment systems that help with energy optimization, server enclosures like cabinets and racks, cable management structures and physical security caging.
Montage first acquired SWDP in 2017. Since the acquisition, SWDP has grown revenue by five times. Tate couldn’t share specifics but said the exit drew a double-digit figure net multiple return on invested capital.
“It’s a successful outcome for everybody,” he said. “I think it’s a true win-win both for [SWDP founder and CEO] Martin [Ament] and the SWDP management team, and for us. I really do believe that the company will continue to benefit from those strong demand tailwinds. It will be a significantly larger company five years from now than it is today. No doubt about that.”
Tate said a central reason for the growth was SWDP manufactured its own branded products with a high degree of customization. Another game changer was SWDP installing those products inside data centers for its customers.
It created less responsibility for customers and shorter wait times. “That’s very unique within the competitive landscape, and that resonated well in the market,” he added. Montage also helped build a management team around Ament to help the company grow to scale.
Montage is looking for target companies that are $1.5 million to $7 million in EBITDA. And the firm is looking for investments in the sectors of business services, consumer, industrial, healthcare and technology.
Data center appeal
PE Hub has seen a consistent interest in data centers and the services that revolve around them. We covered an uptick in deals involving data centers in July. PE firms such as Apollo, KKR and GI Partners invested in data centers in 2023. PE Hub has also seen more deals in the category this year.
In March, Angeles Equity Partners-backed Data Clean acquired DP Guardian. Based in Littleton, Colorado, DP Guardian is a data center cleaning company. In February, Silver Oak Services Partners-backed Summit acquired data center services firm Deft.
Tate said that the amount of power consumption required from AI applications is one example of a factor that has accelerated the need for data centers. “AI is sort of the newest and a really big contributor towards that demand,” he added.
Another reason for the significant PE interest is the continued transition to cloud computing and the prevalence of colocation as an option has allowed users to move from on-premise, physical IT infrastructures to a cloud infrastructure.
