TRANSACTIONAL LIABILITY

Protecting the deal

Data centres are an attractive investment target due to the expected rise in demand for computing power as AI applications proliferate. Investors are therefore acquiring data centres at various stages of development, from shovel ready to part-constructed or fully operational. There are numerous risks for investors to be aware of and seek to mitigate.

Market environment

We have seen a wide range for transaction sizes in this sector, from mid-market to multi-billion large-cap transactions. We have worked with investment funds, strategic purchasers and sovereign wealth funds, to name a few. The breadth of investors demonstrates the atypical nature of buyers and sellers – and the strength of the sector.

We have also seen a steady increase in investments through subscription models, particularly in large-cap transactions. This enables the underlying infrastructure platform to onboard additional investors onto operational assets, whilst also raising funding to accelerate growth.

Specific risks

  • Taxation: with large development costs, tax assets often carry significant value. These can be insured, subject to the relevant diligence – which we can advise on.
  • Property rights and title: particularly in multi-jurisdictional deals, title can pose challenges – sometimes unregistered, or with gaps in planning and permissions such as rights of way or easements.
  • Material contracts: an increasingly critical area of cover, where we’ve delivered real value to buyers during claims.
  • IP, IT, data protection and cyber: higher-risk areas now squarely in focus during diligence.
  • Due diligence sampling: under greater scrutiny on larger transactions. A detailed, well-planned scope that examines deal-specific risks is needed to avoid gaps in cover.

The breadth of investors demonstrates the atypical nature of buyers and sellers – and the strength of the sector

Recommendations:

  • Identify key value drivers of the transaction
  • Obtain detailed technical diligence of the underlying assets
  • Consider risks relating to operational and property elements such as:

  1. Title, planning and permits
  2. Environmental diligence (including an increasing focus on ESG compliance and benchmarking)
  3. IT, cyber and GDPR/data protection (particularly where large workforces or customer bases exist)

Opportunities:

  • Consider specialist tax liability insurance to protect against specific, known tax issues that could crystallise into a liability – a frequent issue for cross-border businesses
  • Consider specialist insurance protection against loss from an identified risk, including:

  1. Prospective or ongoing court or arbitral proceedings​
  2. Contractual interpretation issues​
  3. Identified contingent balance sheet liabilities​
  4. Complex ownership/title risks​
  5. Regulatory decisions ​

Previous page
Next page