Digital Realty: How to Survive a Market Meltdown and Come Out on Top

To Bill Stein, CEO of Digital Realty Trust, one of the world’s two largest data center providers, few things are better for a company in Digital’s line of business than a market crisis the company is well prepared for.

“Having gone through a few financial disruptions in the past, I think you always have to manage your balance sheet. Not only defensively, but with the recognition that when that next crisis happens, you want to be in a position to take an advantage,” Stein said in an interview for The Data Center Podcast. (Stream or download the podcast below)

The two big market disruptions in Digital’s history were the dotcom bust of the early 2000s and the global financial crisis of 2008. The first was to an extent responsible for it becoming the company it is today; the second helped it grow while most of its competitors were busy just trying to stay afloat.

While they were meltdowns of different nature, both crises resulted in lots of low-cost data center assets on the market, as companies were trying to slim down their balance sheets; and in both instances Digital was a rare player with the capital to take advantage of the situation.

Digital Realty didn’t actually exist as a stand-alone company in the early 2000s. It was a portfolio of data centers and office buildings owned by GI Partners, which the private equity firm beefed up during the dotcom crash by buying assets on the cheap from distressed companies.

GI spun the portfolio off in an IPO in 2004, forming Digital Realty and bringing Stein on board as CFO to help facilitate the float. He became CEO 10 years later, replacing the company’s founding chief executive, Michael Foust.

Fast-forward to today, and Digital is facing a very different market, where hyper-scale cloud providers are expanding at unprecedented rates, gobbling up data center capacity many megawatts at a time; while smaller cloud players, the likes of IBM and Oracle, are also investing billions in cloud data center expansion.

As it competes for these deals, Digital is also helping along the wave of consolidation that’s been rolling through the still-fragmented market. It’s made three blockbuster deals in recent years, all transformational for the business. They were the acquisitions of Telx and of a portfolio of TelecityGroup and Equinix properties from Equinix in Europe, and most recently the DuPont Fabros Technology deal, which put Digital firmly ahead of all other publicly traded data center players as a provider of space and power for hyper-scale cloud and social networking companies in North America.

We recorded this podcast in May, before the DuPont Fabros deal was announced, so we did not get comment from Stein on that particular acquisition. (You can read our coverage and analysis of the deal here and here.) But we did pick his brain about Digital Realty’s history, its acquisition strategy, the forces that are shaping the market today, and many other things.

Here it is, The Data Center Podcast, featuring Bill Stein, CEO of Digital Realty Trust: