Cervalis receives $75m in funding for new Norwalk, Connecticut datacenter
Analyst: Michael Levy - 451 Reasearch LLC
Tuesday, August 14th, 2012
T1R has eagerly awaited further details on Cervalis' new Connecticut datacenter; the provider has released only sporadic updates. Finally, Cervalis has disclosed a bit more information upon the closing of a $75m credit facility. The credit facility is led by Capital Source and the funding will not only be used to build the new Connecticut facility, but also restructure the company's existing debt to reflect favorable market conditions.
The New York City metro multi-tenant datacenter industry can continue to depend on Cervalis to push the parameters of the market outward. The company's Totowa, New Jersey datacenter marks the westernmost boundary of the market and now it plans to add another datacenter on the northern periphery of the market in Norwalk, Connecticut. T1R previously wrote that Cervalis disclosed the proposed facility would offer 50,000 square feet of net sellable floorspace. Now we know that the selected site offers 170,000 gross square feet, 50,000 square feet of which will be designated as disaster-recovery space.
Furthermore, Cervalis revealed that the facility will receive 16MW of utility power from two different providers – The United Illuminating Company and Northeast Utilities – and three different substations, provide 3,500 tons of cooling capacity, with UPS systems configured to 2N redundancy and generator backup with N+1 redundancy. Although Cervalis has carved quite a niche in the disaster recovery space, which T1R must say it fills very well, the provider is emphasizing that this facility is positioned to accommodate disaster recovery and production workloads. Phase I will provide 25,000 square feet of net sellable datacenter capacity and has a Q3 2013 planned opening. Although Cervalis has not yet reported an official anchor tenant, the company told T1R that it has some seriously interested parties.
Recap of 2011
Full-service IT provider Cervalis had a strong year in 2011. The company saw excellent demand for all its services (CT, NY and NJ managed hosting, managed security, managed storage, colocation, private cloud, desktop virtualization, business continuity-disaster recovery (BCDR) space and telecommunications and networking) and saw revenue grow 30% Y/Y. Furthermore, occupancy of Cervalis' Totowa, NJ managed storage datacenter tripled in 2011 and the firm has multiple large contracts currently in negotiation for hundreds of cabinets each. Cervalis is seriously looking at expansion opportunities beyond the project discussed in this report, as its three facilities in Totowa, New Jersey; Wappinger Falls, New York; and Fairfield, Connecticut, are filling up rapidly.
Although Cervalis' customer base has expanded over the past year, its composition has remained largely the same. Over 85% of Cervalis' customers are based in the greater NYC area and roughly 60-65% are part of the financial services sector. Primary verticals include finance, insurance, health care, pharmaceutical, law firms and media. Many of these must adhere to stringent compliance codes and Cervalis takes the effort to help customers meet these compliances. All Cervalis facilities are SSAE 16, SOC 1, PCI and Cybertrust certified annually. Cervalis provides customers its own audits free of charge to facilitate compliance standards the customers must meet on their end. Cervalis believes that the new Norwalk facility will attract a similar type of clientele.
Cervalis is a huge proponent of long-term customer relationships and has signed multiple 10-year leases. Many of Cervalis' customers that were initially colocated in its older facilities have set up an active-active configuration with the Totowa facility, replicating data on a transaction basis, to further ensure their uptime in any circumstance. Furthermore, some clients in the older facilities have used SAN replication and strong telecommunications rings to shift their primary workload to the Totowa facility and make either Wappinger Falls or Fairfield their backup facility.
T1R believes that Cervalis will not compete with multi-tenant datacenter providers in Connecticut, but rather the major players in the New York City metro market. (Once Digital Realty Trust expands its Connecticut facility, Cervalis may compete with it for large colocation deals to some degree.) We believe Equinix, Telx, IO, CoreSite and Savvis are formidable competitors for Cervalis. The company has noted that it also competes with more localized players as well. When it comes to disaster-recovery services, we believe that SunGard is Cervalis' primary competitor.
The New York City metro multi-tenant datacenter market is among the most sophisticated. We see providers take extra care to differentiate themselves by assuming distinct roles. Cervalis has chosen to reinforce its security, compliance and disaster recovery positions, which is clear by the unique positioning of its facilities on the periphery of the New York City market. Cervalis is devoting equal physical space to datacenter services and disaster recovery seating in the Norwalk build. After witnessing the rapid uptake of both services in its similarly sized Totowa facility, an equally avant-garde location, T1R does not doubt Cervalis will find success in the Norwalk facility when it opens a year from now.
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