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Equinix (EQIX) to Buy Certain Data Center Assets from Verizon
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It seems that Equinix Inc. (EQIX - Free Report) is firing on all cylinders to expand its data center business across different regions. After completing the acquisition of Telecity Group Plc this year, the company yesterday entered into another deal to buy certain data center assets from Verizon Communications Inc. (VZ - Free Report) .
Per the definitive agreement, Equinix agreed to acquire 24 data center sites, which consist of 29 data center buildings across 15 metro areas, in operation from Verizon for a total cash consideration of $3.6 billion. The deal is anticipated to be complete by mid-2017.
Why is Verizon Selling its Assets?
Verizon’s move is believed to be a part of its effort toward shifting its focus on the mobile video and advertising arena as the telecommunication industry is currently undergoing consolidation. It should be noted that the company has agreed to acquire Yahoo! Inc. for approximately $4.8 billion and has been trying to enhance AOL’s web properties.
These strategic initiatives are likely to help Verizon in making its presence felt in the mobile video advertising arena and better compete with already major players in this field such as Alphabet’s (GOOGL - Free Report) Google, Facebook and Twitter.
Furthermore, the recent sale agreement with Equinix will bring in much needed funds for completing the pending acquisition of Yahoo.
Buyout Makes Sense for Equinix
The addition of the aforementioned facilities will prove to be beneficial for Equinix for various reasons. First, the company will be able to expand its interconnection capabilities in the United States and Latin America. Per the company press release, the data center facility in Miami will be a key interconnection point and will help Equinix in expanding its services in across Latin America.
Second, the transaction will open three new markets for Equinix – Bogota, Culpeper and Houston, thereby increasing its operations to 43 markets across five continents. Furthermore, with the addition of 29 new data center buildings, Equinix’s total number of data center will be 175 and span approximately 17 million gross square feet across the Americas, Europe and Asia-Pacific markets.
Third, the addition of new data centers is expected to help Equinix to further expand its foothold in the enterprise segment. The 24 data center sites service roughly 900 customers, which according to the company includes a significant number of enterprises.
Acquisitions – A Key Growth Strategy
Acquisitions have remained one of the key growth strategies for Equinix. This year, the company completed the acquisition of Telecity for $3.8 billion, thus becoming the number one European data center operator.
Equinix made several important acquisitions last year as well. In Jan 2015, Equinix acquired Nimbo – a leading professional services company, primarily focused on enabling enterprises to develop and implement hybrid cloud. In September last year, the company commenced a cash tender offer for all issued and outstanding shares of Tokyo-based Bit-isle through its Japanese subsidiary. All these acquisitions have made decent contributions toward total revenue growth.
Bottom Line
Expansion in important markets and consolidation of facilities in existing ones have been an important part of Equinix's core strategy. 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 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 roughly one fourth of the total revenue.
Further, Equinix remains positive on growing demand for data centers. To meet the growing demand for cloud services, the global interconnection and data center company is expanding its IBX data centers globally 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% from 2013 to 2017 and reach $24.0 billion. Based on this projection, Equinix projects a revenue growth rate of 10% through 2017.
Therefore, we believe that by acquiring data center assets from Verizon, Equinix will be in a better position to capitalize on this opportunity. Furthermore, the deal will help the company in further strengthening its global footprint and bring in additional revenues by adding approximately 900 customers.
Shares of Equinix have been steadily treading higher on a year-to-date basis. The stock generated a return of approximately 9% compared with the Zacks REIT-Equity Trust industry’s negative return of 1.6%.
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Equinix (EQIX) to Buy Certain Data Center Assets from Verizon
It seems that Equinix Inc. (EQIX - Free Report) is firing on all cylinders to expand its data center business across different regions. After completing the acquisition of Telecity Group Plc this year, the company yesterday entered into another deal to buy certain data center assets from Verizon Communications Inc. (VZ - Free Report) .
Per the definitive agreement, Equinix agreed to acquire 24 data center sites, which consist of 29 data center buildings across 15 metro areas, in operation from Verizon for a total cash consideration of $3.6 billion. The deal is anticipated to be complete by mid-2017.
Why is Verizon Selling its Assets?
Verizon’s move is believed to be a part of its effort toward shifting its focus on the mobile video and advertising arena as the telecommunication industry is currently undergoing consolidation. It should be noted that the company has agreed to acquire Yahoo! Inc. for approximately $4.8 billion and has been trying to enhance AOL’s web properties.
These strategic initiatives are likely to help Verizon in making its presence felt in the mobile video advertising arena and better compete with already major players in this field such as Alphabet’s (GOOGL - Free Report) Google, Facebook and Twitter.
Furthermore, the recent sale agreement with Equinix will bring in much needed funds for completing the pending acquisition of Yahoo.
Buyout Makes Sense for Equinix
The addition of the aforementioned facilities will prove to be beneficial for Equinix for various reasons. First, the company will be able to expand its interconnection capabilities in the United States and Latin America. Per the company press release, the data center facility in Miami will be a key interconnection point and will help Equinix in expanding its services in across Latin America.
Second, the transaction will open three new markets for Equinix – Bogota, Culpeper and Houston, thereby increasing its operations to 43 markets across five continents. Furthermore, with the addition of 29 new data center buildings, Equinix’s total number of data center will be 175 and span approximately 17 million gross square feet across the Americas, Europe and Asia-Pacific markets.
Third, the addition of new data centers is expected to help Equinix to further expand its foothold in the enterprise segment. The 24 data center sites service roughly 900 customers, which according to the company includes a significant number of enterprises.
Acquisitions – A Key Growth Strategy
Acquisitions have remained one of the key growth strategies for Equinix. This year, the company completed the acquisition of Telecity for $3.8 billion, thus becoming the number one European data center operator.
Equinix made several important acquisitions last year as well. In Jan 2015, Equinix acquired Nimbo – a leading professional services company, primarily focused on enabling enterprises to develop and implement hybrid cloud. In September last year, the company commenced a cash tender offer for all issued and outstanding shares of Tokyo-based Bit-isle through its Japanese subsidiary. All these acquisitions have made decent contributions toward total revenue growth.
Bottom Line
Expansion in important markets and consolidation of facilities in existing ones have been an important part of Equinix's core strategy. 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 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 roughly one fourth of the total revenue.
Further, Equinix remains positive on growing demand for data centers. To meet the growing demand for cloud services, the global interconnection and data center company is expanding its IBX data centers globally 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% from 2013 to 2017 and reach $24.0 billion. Based on this projection, Equinix projects a revenue growth rate of 10% through 2017.
Therefore, we believe that by acquiring data center assets from Verizon, Equinix will be in a better position to capitalize on this opportunity. Furthermore, the deal will help the company in further strengthening its global footprint and bring in additional revenues by adding approximately 900 customers.
Shares of Equinix have been steadily treading higher on a year-to-date basis. The stock generated a return of approximately 9% compared with the Zacks REIT-Equity Trust industry’s negative return of 1.6%.
Currently, Equinix carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>