The Asia-Pacific (APAC) region has become a hotbed for investment in digital infrastructure. According to Inframation, 56 such deals have been struck in APAC so far in 2023, for a combined US$34.8 billion. These figures already represent marked increases over the full-year totals of 31 deals worth US$20.7 billion recorded in 2022, setting new record highs on both counts.

With rapid technology adoption, including among previously digitally underserved populations in large emerging markets, APAC offers tantalizing prospects for investors looking to capitalize on its growth story.

The link between digital infrastructure investment and economic prosperity is clear. According to the World Economic Forum, every US$1 dollar of investment in information and communications technologies drives US$13 dollars in GDP output.

Critical digital infrastructure has grown to encompass a wide array of products and services beyond just computing and connectivity, with data centers, fiber networks, towers and even satellites all playing their part in building inclusive connectivity within the region. As such, the sector offers numerous growth opportunities for dealmakers looking to expand their offerings and grow their consumer base.

Relentless digitalization across APAC is putting intense pressure on critical digital infrastructure. Dealmakers are well placed to foster connectivity across communities, thereby bolstering the region’s already-strong economic growth potential.

Global PE players eye Southeast Asian data centers

There is a buzz growing around Southeast Asia’s data center market, which is set to become a focus for private investment. The industry is predicted to grow by 17 percent over the next five years, attracting US$9 billion to US$13 billion of investment in that time. According to market research company Renub, APAC’s data center market will be worth more than US$53 billion by 2028.

By providing long-term, stable returns, data centers are increasingly seen as a safe bet for investors in an otherwise unpredictable global market. In a notable vote of confidence in the region’s growth potential, US private equity giant KKR acquired a 20 percent stake in Singtel’s regional data center business. The US$800 million investment, which values the Singapore-based telco at more than US$4 billion, is KKR’s largest investment in Southeast Asian data center infrastructure to date.

There are a growing number of greenfield investments in APAC’s data centers, offering new opportunities for dealmakers looking for future investments. According to commercial real estate group Cushman & Wakefield, the operational capacity of data centers in emerging markets including Indonesia, the Philippines, Thailand and Malaysia will more than double over the next five to seven years.

In fact, Malaysia has generated two of APAC’s largest data center deals of 2023. In January, in a transaction valued at almost US$3.5 billion according to Inframation, Singapore-based real estate PE firm Area Group acquired 150 acres in the northern Malaysian state of Kedah, bordering Thailand, for developing a new data center park. A few months later, in May, US-based Vantage Data Centers announced it was investing US$3 billion in a new data center campus in Cyberjaya, a smart city and major technology hub to the south of Malaysia’s capital Kuala Lumpur.

Nevertheless, China remains the bellwether of APAC’s data center space. Indeed, the largest greenfield investment so far this year was the financing of a campus in northern China by Bain Capital-backed data center operator Chindata. The construction of the data center, located in Shanxi province, will cost an estimated US$5 billion and provide an IT capacity of 500 megawatts, more than half of which will be powered by renewables. Bain and Chindata announced in August that they would take the data center company private in a deal worth more than US$3 billion.

Tower asset deals bridge digital divide

Reliance on digital connectivity and the need to reach underserved communities is driving dealmaking across APAC’s towers sector. In a bid to offer greater speed and connectivity to consumers, New Zealand tower business Connexa acquired local telco provider 2degrees’ tower assets for US$661 million, expanding its network to more than 2,350 towers throughout the country.

The deal is a major step in building a sustainable and efficient tower network in New Zealand. According to Connexa chief executive Rob Berrill, the purchase increases the number of tower networks across the company by 25 percent.

Tower businesses in the Philippines are also taking great strides to deliver digital connectivity to local communities around the archipelago. KKR-backed Frontier Tower Associates Philippines has been on a buying spree, snapping up a portfolio of 1,012 towers and associated infrastructure from local telecoms provider PLDT for US$220 million in March 2023. A couple of months later, Frontier completed the third transfer of towers in a long-run deal with local telco provider Globe Telecom, on this occasion taking ownership of 431 towers. These deals underscore Frontier’s ambition to enhance the Philippines’ critical digital infrastructure, delivering faster network connectivity to consumers across the country.

Toward a digital future

APAC’s macroeconomic and digital future is bright. The region is predicted to comprise more than half of global GDP by 2050, with digitalization contributing around 60 percent to this output.

Yet there remain vast differences in access to digital infrastructure across the region, leaving significant room for growth and investment. McKinsey estimates the investment gap for APAC digital infrastructure will reach US$512 billion by 2040, with the bulk of this gap due to a projected deficit in connectivity-related investments and data centers, according to the Asian Infrastructure Investment Bank. Alongside traditional M&A, there will likely also be opportunities for private equity investments in fiber, as seen in the US and Europe.

There is plenty on offer for dealmakers looking to seize the opportunity, though access to capital and regulatory hurdles may present challenges, but those that overcome these obstacles will play a part in building APAC’s digital future.