SoftBank eyes data centre group switch as Son hunts for AI

SOFTBANK Group is studying potential acquisitions including data centre operator Switch Inc., as billionaire founder Masayoshi Son ramps up the search for deals that can help it ride the AI-fueled boom in digital infrastructure, people with knowledge of the matter said.

The Japanese company has held discussions with Switch leadership and has been conducting due diligence on the closely held company, the people said, asking not to be identified because the information is private.

SoftBank also has been in advanced talks on a potential purchase of one of Switch’s main private equity backers, New York-listed investment firm DigitalBridge Group, Bloomberg News reported last week. 

Son has been looking for ways to play a bigger role in an artificial intelligence race that has elevated SoftBank’s longtime business partner Nvidia to the status of the world’s most valuable company.

An acquisition of Switch, which specialises in designing and operating energy-efficient data centers, would help the Japanese billionaire control a key bottleneck to AI development.

The owners of Switch have been seeking a valuation of around US$50 billion including debt for the data centre operator in any deal, some of the people said.

They have also been simultaneously preparing for a potential initial public offering of Switch as soon as early next year, according to the people. Switch’s backers have been considering seeking a valuation of about US$60 billion including debt in a stock-market listing of the company, they said. 

The SoftBank team often analyses numerous potential deals in a particular space before deciding which transaction to pursue, and it sometimes decides to do multiple deals in a particular area it wants to rapidly expand in.

Acquiring Switch would allow SoftBank to own a large portfolio of data centres outright at a time when demand for their computing power is growing rapidly. 

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A consortium including DigitalBridge and Australian infrastructure manager IFM Investors Pty bought Switch in a 2022 deal valued at US$11 billion including debt. 

Shares of DigitalBridge have gained about 35 per cent this year, giving it a market value of US$2.8 billion.

With about US$108 billion of assets under management, it’s one of the biggest investment firms focused on digital infrastructure. A deal for DigitalBridge would bring SoftBank expertise in raising large amounts of capital, as well as deep relationships with investors keen to deploy their money in the data centre industry.

SoftBank hasn’t reached an agreement on terms of a deal, and there’s no certainty the discussions will lead to a transaction, the people said. It would likely need to line up significant financing for any acquisition of Switch, which would rank as one of SoftBank’s largest deals if it goes ahead. 

Representatives for SoftBank, Switch and DigitalBridge declined to comment.

Despite being early to invest in AI technologies, Son has missed much of a global rally that’s positioned Nvidia, Taiwan Semiconductor Manufacturing Co. and OpenAI at the forefront of a global boom in machine learning.

This year, however, SoftBank has announced a plethora of moves in the AI arena, including the US$500 billion Stargate project alongside OpenAI, Oracle and Abu Dhabi’s MGX to build data centres in the US. But while Son pledged to deploy US$100 billion “immediately,” the Stargate rollout has been slower than planned. 

In recent months, SoftBank bought US chip designer Ampere Computing LLC for US$6.5 billion and has committed roughly US$30 billion to ChatGPT developer OpenAI.

The Tokyo-based company has also proposed a US$5.4 billion acquisition of ABB’s robotics unit and bought a stake in chipmaker Intel Corp.

To finance some of that cost, SoftBank has unloaded its entire Nvidia stake and expanded a margin loan using its Arm Holdings shares. The company’s SoftBank telecom unit is also ramping up spending on its data centres in Japan. 

SoftBank investors have responded favourably to these and other developments, with the company’s shares almost doubling this year. BLOOMBERG