The much-awaited tie-up between Equinix Inc. EQIX and Telecity Group Plc moved a step ahead following a recent announcement by the European Union (EU) antitrust regulators. According to a filing on its website, the EU antitrust regulator will reach a conclusion on the pending acquisition by Oct 29. The commission’s website also revealed that the U.S. data center operator sought the regulators’ approval on Sep 24.
Earlier, in May, Equinix signed a deal to acquire Telecity which provides carrier-neutral data centers in Europe. The U.K.-based company also offers secure and connected environments for IT and telecom equipment. Post acquisition, Equinix will become the number one European data center operator.
The cash-and-stock transaction is valued at approximately $3.7 billion, based on Telecity's closing stock price of 849 pence as on Feb 10, 2015. On completion of the deal, Telecity will retain roughly 10.1% stake in the combined entity. The move is believed to be part of Equinix’s efforts to bolster its digital marketing capabilities.
The European data center space will allow Equinix to tap into the solid demand from its network, content, cloud and financial services customers. This deal reaffirms service providers’ preference for data centers in order to gain market share. It also gives Equinix an opportunity to cash in on the yet-unexplored European market.
The deal will bode well for Equinix as the expansion of data centers will strengthen its portfolio in one of the major global trade hubs and financial centers.
Expansion in important markets and consolidation of facilities in the existing ones has been part of Equinix’s core strategy. Earlier this month, the company commenced a cash tender offer for all issued and outstanding shares of Tokyo-based Bit-isle through its Japanese subsidiary.
Founded in 2000, Bit-isle offers outsourced IT services to over 650 customers through six data centers in Japan — five located in Tokyo and one in Osaka. By leveraging the company’s strong local presence, Equinix will be able to penetrate deeper into the Japanese and broader Asia-Pacific region, which is currently one of the fastest growing markets. Notably, the company generates approximately 18% of revenues from the Asia-Pacific region.
Going ahead, Equinix continuously strives to boost its revenue base as well as profitability by offering upgraded technology to attract clients. Moreover, the recurring revenue model has provided the much-needed support to the company’s revenue stream over the years. The company’s cloud and IT service businesses are its fastest growing segments and account for approximately one fourth of the total revenue.
Equinix is positive on the growing demand for data centers driven by the Big Data exchanges. To meet this demand, the global interconnection and data center company is expanding its IBX data centers across the world and gaining popularity among tech companies looking for data management. Thus, the company expects its total addressable market for retail data centers to increase at a CAGR of 8% for the period 2013 to 2017 and reach $24.0 billion. Based on this projection, the company estimates a 10% revenue growth rate through 2017.
Nonetheless, Equinix competes with Internet data centers operated by established communications carriers like AT&T T, Level 3 Communications LVLT and Verizon Communications VZ.
Moreover, the telecommunication industry is currently undergoing consolidation. As customers combine businesses, they may require less co-location space, and fewer networks may be available to choose from. In addition, increased utilization of existing co-location space could make it more difficult for Equinix to expand.
Currently, Equinix sports a Zacks Rank #1 (Strong Buy).
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