Obinna Isiadinso, Global Sector Lead for Data Center and Cloud Investments at the International Finance Corporation (IFC), has emphasized the importance of a balanced approach to evaluating data center investments. He warns that many investors overly rely on Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) multiples, which focus primarily on current profitability, potentially neglecting long-term returns and inherent risks.
In today’s dynamic market landscape, spanning both developed regions like the U.S. and emerging economies in Southeast Asia and Africa, Isiadinso advocates for a dual, balanced focus on both EBITDA and Internal Rate of Return (IRR). According to him, this comprehensive evaluation is crucial as operational costs rise and market conditions evolve.
His key insights for data center investors and operators include:
- Beyond short-term profit : While EBITDA multiples provide a snapshot of short-term profitability, IRR offers deeper insights into long-term financial health by accounting for future cash flows and market fluctuations.
- Emerging markets require depth: Investing in data centers within emerging markets necessitates thorough analysis. Although EBITDA indicates potential profitability, IRR reveals the investment’s resilience in unstable or rapidly growing economies.
- Future-proof valuations: EBITDA multiples may present an investment as attractive today, but IRR aids in forecasting performance amidst changing technologies, energy costs, and regulatory landscapes.
- Holistic investment strategy: By assessing both EBITDA and IRR, data center investors can adopt a more strategic approach, ensuring that decisions are driven by long-term viability rather than immediate gains.
By integrating these metrics, Isiadinso says, investors can better position their data center investments for sustained success in both established and burgeoning markets.
Africa’s data center market remains in a nascent phase, largely due to limited connectivity infrastructure. However, as digital demand increases, there is significant potential for expansion. Improved connectivity and investment in technology will ensure that Africa’s IRR is increasingly attractive for long-term investment.
