In a surprising M&A move, Equinix (NASDAQ:EQIX, news, filings) is planning to buy its smaller rival sdxc for $689M, or $19.06 per share. That is a solid 32% premium above today’s market close of $14.40. The acquisition will add 34 datacenters in 22 North American markets totaling more than 1 million square feet to Equinix’s already huge footprint. 16 of those markets will be new, as Equinix’s own footprint is focused heavily on the largest markets. This acquisition will give them a more balanced footprint across the continent with a presence in smaller (but not small) markets, as well as eliminate one of the few competitors they face with such wide geographical coverage.
Equinix said that it will use its cash on hand to finance the acquisition. I’m sure they can, but I doubt they will leave it there. If available, they will probably look to raise money if only because there are so many profitable places to invest it right now. Datacenter mergers are easier to do than those involving fiber networks, as the assets largely stand alone and have a value that is much easier to measure, but on the other hand there are fewer opportunities for synergies. But Equinix is clearly in expansion mode on all fronts, one wonders when or if the party will ever stop.
Switch and Data has always lived in the shadow of the larger Equinix, the two together being the main public, independent, neutral datacenter providers available to investors looking for a pure play in the sector. The other main possibilities, Dupont Fabros Technology (NYSE:DFT, news, filings) and Digital Realty Trust (NYSE:DLR, news, filings) are more datacenter real estate developers than operators. But Switch and Data stock has never been given the kind of premium Equinix has had, and they do not have the cash flow to support expansion at similar rates. It’s not as if Switch and Data needed to sell out, they are quite healthy – it’s just that Equinix can probably use its cash flow to grow the business faster and thus the deal makes sense. Equinix’s high-flying stock (pushing 100 lately again) clearly provided the currency to make the deal happen.
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