Morgan Stanley, RBC had winning edge for $1.3bn Next DC raise

NextDC chief executive Craig Scroggie has seen the value of his data centre company surge by billions of dollars.

Hot on the heels of NextDC’s blockbuster equity raising, another big deal is set to be hitting the market in the weeks ahead, say sources, likely linked to a mergers and acquisition transaction.

DataRoom has learned that the raise is in the same ballpark for size as the Next DC deal, which saw the data centre operator move to secure more than $1.3bn from equity investors in a fully underwritten one for six pro rata, accelerated non-renounceable entitlement offer.

It’s good news for equity capital markets bankers, who saw ECM proceeds down 8 per cent in 2023 in the Australia market to $16.2bn.

But enjoying the uptick in activity the most on Thursday were Morgan Stanley and Royal Bank of Canada, who were picked by the $8.6bn NextDC and its adviser Cadence Advisory to undertake the equity raising – a part of an investment banker’s work that is more lucrative than most.

Apparently, Morgan Stanley and Royal Bank of Canada have the best teams in the world when it comes to data centre expertise, along with Goldman Sachs.

RBC itself is said to have the number one data centre analyst in the market, Jonathan Atkin.

As well as having Australian teams on the ground, they have big teams in the United States where all NextDC’s major data centre customers like Google, Microsoft and Amazon are based.

RBC holds an annual investor days with world-leading data centre experts globally, while Morgan Stanley has worked on about ten multibillion-dollar trades in recent years involving data centre companies, including Digital Bridge’s bid for Switch and advising CyrusOne on KKR and GIP’s bid.

Both banks have worked with NextDC before.

Data centres are appealing to buyers because of their defensive nature. Picture: Mark Cranitch.

While most monster raisings are associated with mergers and acquisition deals, NextDC has far too much wood to chop for its own organic development to embark on corporate activity and can barely keep up with demand.

Next year alone it has a capital spending budget of $850m.

Its raise was first flagged by DataRoom last week and the company confirmed on Thursday it was selling shares at $15.40, a 7.8 per cent discount to the last close of $16.71, although shares fell on the back of the equity raise speculation reported on April 3 by this column and were trading at more than $17.40 before that time.

It is a 6.8 per cent discount to the Theoretical Ex-Rights Price.

The company has a history of taking advantage of share price rallies, and no one can dispute it did just that on Thursday after the stock rallied 58 per cent in the past year.

The other listed data centre owners, Goodman Group and Global Data Investment Fund, are up, with few opportunities to get exposure to what is a particularly hot sector in the listed market with artificial intelligence requiring amplified power requirements.

The raise enables NextDC to take on more debt to fund its data centre development with $589m of cash, $1.5bn of undrawn debt and $1.296bn from the raise.

The raise was anticipated to be well received as bankers went cap in hand to global and local institutional investors on Thursday.

Data centres are appealing to buyers because of their defensive nature and have offered a stable, low-risk home for large pools of funds raised by private equity and superannuation funds.

Elsewhere, on the smaller end of the ECM spectrum on Thursday, the $60m online betting company BlueBet tapped the market for $20m as it announced a deal to merge with Matthew Tripp’s wagering operation Betr.

The deal is designed to give BlueBet more scale and synergies and fire power for future acquisitions.

The placement through Ord Minnett is at 21c a share after its shares last traded at 30c.

BlueBet will issue 56.9 per cent of the company to Betr shareholders before the placement.

The raise on Thursday night was understood to be three times oversubscribed.