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By Ben Kolada

The past year set several records for M&A in the hosting and managed services sectors. Industry players, including fellow companies, private equity (PE) firms and telecom carriers, announced a total of 102 deals, eclipsing the previous record set in 2006. The aggregate value of last year’s transactions hit $4.8bn. True, records set in 2010 were partially the result of pent-up demand from the Credit Crisis, but we wouldn’t call the year a fluke. In fact, we expect that 2011 will continue the upward trajectory.

In 2010, we saw record acquisitions of all flavors. In terms of deal size, at an estimated $450m, SoftLayer Technologies’ sale to GI Partners and SoftLayer’s management topped our list of PE purchases of hosting providers. Buyout shops were also active internationally, with both Lloyds Banking Group (NYSE:LYG) and Montagu Private Equity each inking deals. Meanwhile, telecom providers were particularly active last year. Telco incumbent Cincinnati Bell (NYSE:CBB) announced the largest telecom-colocation transaction on record, and notable mention goes to Windstream Communications (NASDAQ:WIN) for its $310m pickup of Hosted Solutions. Meanwhile, wholesale datacenter provider Digital Realty Trust (NYSE:DLR) inked the sector’s largest acquisition of the year (in fact, the largest colocation transaction we’ve ever recorded), paying $725m for Rockwood Capital’s 365 Main portfolio.

On the macroeconomic side, we expect M&A in the hosting and managed services industries in 2011 to be driven by the following: enterprises converting capex to opex through IT outsourcing, increasing acceptance of outsourcing since that model successfully solved internal IT constraints; improving access to capital, allowing providers to continue to expand and innovate in order to meet market demands; and investment for growth, whether that be directly through M&A, via funding provided by PE, or both. On the microeconomic side, M&A will be predominately driven by consolidation and rollup to achieve scale, amass customer bases and add complementary infrastructure and service lines in order to create and expand new service offerings. Click here to see our full review of 2010 and our predictions for 2011.

Source: Continued M&A Activity in Hosting Sector Expected in 2011