Charlotte-based Peak 10 operates data centers in 10 markets, mostly in the Southeast. The company also provides cloud services, connectivity, compliance and other services centered around data storage. It has annual revenue of roughly $200 million and has almost 400 employees. The company’s owners are San Francisco private-equity firm GI Partners and Peak 10’s management. Chris Downie has been at the company since September.
My biggest mistake came when dealing with my board during the sale of the company to a private-equity firm.
Earlier in my career, I was an investment banker for 10 years where I played a role as a liaison between sponsors with capital and management. Now that I’m in the operating world, I’m much more involved in management, but I understand how that world is focused on certain things that management isn’t.
As you’re executing upon your strategy in this business, it’s critical to be focused and steadfast on the 10-year horizon of your decision-making. Your strategy depends on a certain timeframe to prove out and be successful.
There’s some low-hanging fruit that can be done in 60 days, 90 days, but there are many decisions in the infrastructure space that manifest themselves over three years, five years, seven years. For a data center, you’re putting infrastructure in ground for 20-plus years and not an insignificant amount of capital.
A data center will cost a minimum of $20 million and upwards of $100 million. It can take three, five, seven years to build a customer base to drive the revenue and profitability to make the investment thesis play out.
I was at Telx, also a data center company, for just shy of a decade. About two years before I left, we made a significant investment in a new market and a new region, and we were having our challenges. We made a business case for a 20-year investment with a maturation period of five years.
About 1.5 years into it, we were subject to critical measurements of it because of the sale of the company. There were questions about how to sell its services faster, about lowering prices to drive revenue. Those were unnatural decisions being forced on us to optimize the return for the investors.
The mistake was bending to that perspective versus holding ground.
In that situation, I tried to convince our board that part of the value a buyer is paying for is the longer-term growth prospects of the investment we made. Regardless of whether it was convenient or inconvenient, it should be evaluated by the purchaser.
I tried to get the board and our investors to understand the long-term strategic value element of being in that market and having that capacity. You can make the mistake of driving to the convenience of the task at hand, which can be hard to recover from. We did certain deals that were not in the best long-term interest of the facility, which in hindsight, I could have pressed harder about, to show the opportunity cost that wasn’t being respected in the sale.
The mistake was bending to that perspective versus holding ground to what was the right decision relative to the investment horizon of that specific facility. I didn’t make the case as hard as I could have or should have.
I’m not kidding myself that we have similar investors that are ultimately in the business to generate a return. As we move forward, certainly we will be sensitizing the management, the company and the sponsors that investments of this nature come with cost exposures or operational sensitivities that would not be convenient for a sales event.
Follow Peak 10 on Twitter at: @Peak_Ten
Pictured: Chris Downie. | Photo courtesy of Peak 10.