Brisbane-headquartered data centre operator NextDC (ASX: NXT) is to acquire a 19.99% stake and become a partner in Sovereign Cloud Holdings for approximately AU$17 million (US$12.3 million).

Sovereign Cloud Holdings, which trades as AUCloud, is Australia’s sovereign cloud Infrastructure-as-a-Service (IaaS) provider focused on the Australian Government, Defence, Intelligence and Critical National Industry (CNI) communities.

NextDC equity purchase is part of a larger $35 million ($25.36 million) placement by AUCloud to issue some 70 million shares representing approximately 70% of existing securities on issue.

AUcloud said it will use the proceeds to expand its operations and move into the enterprise space, including investing in new cloud platforms in Brisbane, Melbourne, and Adelaide, as well as hiring more engineering, sales, marketing and operations staff.

Phil Dawson, AUCloud CEO and managing director, said: “We continue to see a trend towards greater emphasis on sovereign cloud services to ensure all data remains within Australian legal jurisdictions.

“Our strategic partnership with NEXTDC, a leading provider of premium data centre facilities, will provide access to a powerful national network of 1,500+ enterprise customers and 730+ channel partners. This Equity Raising capitalises AUCloud to extend its platform footprint into Brisbane, Melbourne and Adelaide, and expand its customer reach into the large security-conscious enterprise market.”

The capital raise round has been opened with an institutional entitlement offer, with a retail offer launching on 29 November 2021. The transaction is expected to complete by 22 December.

Craig Scroggie, NextDC CEO and managing director, said: “NEXTDC has an in-depth understanding of the underlying cloud market dynamics gained through our national network of premium data centre facilities across Australia.

“Following the injection of growth capital into AUCloud, we believe Phil and the team are very well positioned to benefit from the increasing trend towards sovereign IaaS cloud and high-security solutions”.

Australia is currently enjoying an upsurge in data centre investments and expansions including Microsoft (NASDAQ: MSFT) which is currently seeking permission to build a $1.3 billion hyperscale data centre campus in Sydney.

Google (NASDAQ: GOOGL) has also promised to invest $1 billion ($736 million) in Australian digital infrastructure and data economy over the next five years.

Other players involving AirTrunk, PGIM Real Estate, Canberra Data Centres, Equinix, Inc. (Nasdaq: EQIX), and more are all currently deploying capital to build operations up.