In a bid to expand into the Amsterdam market, Iron Mountain Inc. IRM has acquired the Dutch EvoSwitch data-center business. The company shelled out €205 ($235) million for this acquisition which involved the purchase of EvoSwitch Netherlands B.V and EvoSwitch Global Services B.V. (EvoSwitch NL) in particular. The move comes after Iron Mountain’s expansion in London through data-center facility purchase from Credit Suisse in the past 12 months.
The latest acquisition brings in 11 megawatts (MW) of existing data-center capacity in the Netherlands which happens to be fully leased. Moreover, there is an additional 23 MW expansion capability. As a result, the total data-center portfolio capacity of Iron Mountain, now grows to more than 285 MW.
The expansion into the Amsterdam market, which happens to be the second largest European data-center market, with the acquisition of EvoSwitch NL seems a strategic fit for Iron Mountain. Founded in 2007, EvoSwitch NL operates one of the largest colocation facilities centers in the Metropolitan Region Amsterdam (MRA).
The MRA serves as a crucial node in the FLAP data-center market, i.e. Frankfurt, London, Amsterdam, Paris, and therefore, the acquisition of EvoSwitch NL significantly boosts Iron Mountain’s presence in the region. Particularly, two locations in the MRA join Iron Mountain’s portfolio with this acquisition.
Further, the present campus of EvoSwitch NL already caters to more than 50 connectivity and telecommunication providers, together with internet exchanges, such as the Amsterdam Internet Exchange AMS-IX. Its customers base is diversified as well as global. Moreover, Leaseweb Netherlands B.V., (Leaseweb NL), a cloud hosting company operating in more than 30 countries, represents around 45% of EvoSwitch NL's contracted revenues under a 10-year lease agreement, and will become one of the top five customers of Iron Mountain data centers.
Iron Mountain expects the transaction, including integration costs, to lead to modest dilution to AFFO of around 0.5% in 2018, but be accretive in 2019 following integration. Specifically, stabilized net operating income yield is estimated to be around 12-13% subsequent to build-out and lease-up of the expansion capacity at the EvoSwitch NL sites, while the present capacity is likely to generate annualized revenues of about $30 million at mid-50% adjusted EBITDA margins, the company noted.
Importantly, with growth in cloud computing, Internet of Things and big data and an increasing number of companies opting for third-party IT infrastructure, data-center REITs are experiencing a boom market. In fact, demand is outpacing supply in top-tier data center markets and despite enjoying high occupancy, the top tier markets are absorbing new construction at a faster pace. This, along with an improved outlook for economic growth, is anticipated to spur demand for data centers and offer ample scope for growth to data-center REITs, including Digital Realty DLR, CoreSite Realty Corporation COR and Equinix Inc. EQIX.
Iron Mountain’s latest endeavors in this space also command appreciation and will likely boost its top-line growth by leveraging on the healthy fundamentals. In fact, aggressive acquisitions, along with diversified revenue base, a strong product portfolio and cost-cutting initiatives, bode well for long-term growth. Further, transformation initiatives and continued strong performance of its storage rental business are positives. However, heavy investments in setting up the company’s data-center business dampen its financials, especially as the company already has a highly leveraged balance sheet.
The company currently has a Zacks Rank #3 (Hold). Its total return was 7.8% in the past year, underperforming its industry’s growth of 9.5%.
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