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Equinix to Buy Verizon Assets with Public & Notes Offerings
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Equinix Inc. (EQIX - Free Report) recently announced its plan of commencing concurrent public offerings of $1.75 billion of its common stock and $1.125 billion in principal amount of its senior notes due 2027. Apart from this, the company will provide a 30-day option to underwriters of equity offerings to purchase up to an additional $262.5 million of its common stock. Therefore, the company will be raising $3.138 billion in total with the equity and senior notes offerings.
Equinix intends to use the entire proceeds from the aforementioned offerings, along with its existing term loan B borrowings of $1.053 billion, to pay the purchase price for certain data center assets of Verizon Communications Inc. (VZ - Free Report) , and associated transaction fees and expenses. The remaining amount, if any, will be used for general corporate purposes.
Notably, the two companies entered into definitive agreement on Dec 6, 2016, under which Equinix agreed to acquire Verizon’s 24 data center sites, consisting of 29 data center buildings across 15 metro areas, for a total cash consideration of $3.6 billion. The deal is likely to close by mid-2017.
Why is the Deal So Important for Equinix
Acquisitions have been one of the key growth strategies for Equinix. The addition of Verizon’s facilities will prove to be beneficial for Equinix for various reasons. First, the company will be able to expand its interconnection capabilities in the U.S. 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 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 fortify Equinix’s 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.
Bottom Line
Expansion in important markets and consolidation of facilities in existing ones have been an important part of Equinix's core strategy. The company consistently strives to boost its revenue base as well as profitability, by offering upgraded technology to 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 the growing demand for data centers. To meet the rising demand for cloud services, this 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, Equinix projects 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. In addition, this deal will help the company in 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 4.9% compared with the Zacks REIT-Equity Trust industry’s decline of 1.2%.
Micron and Broadcom have long-term earnings per share growth rate of 10% and 13.6%, respectively.
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Equinix to Buy Verizon Assets with Public & Notes Offerings
Equinix Inc. (EQIX - Free Report) recently announced its plan of commencing concurrent public offerings of $1.75 billion of its common stock and $1.125 billion in principal amount of its senior notes due 2027. Apart from this, the company will provide a 30-day option to underwriters of equity offerings to purchase up to an additional $262.5 million of its common stock. Therefore, the company will be raising $3.138 billion in total with the equity and senior notes offerings.
Equinix intends to use the entire proceeds from the aforementioned offerings, along with its existing term loan B borrowings of $1.053 billion, to pay the purchase price for certain data center assets of Verizon Communications Inc. (VZ - Free Report) , and associated transaction fees and expenses. The remaining amount, if any, will be used for general corporate purposes.
Notably, the two companies entered into definitive agreement on Dec 6, 2016, under which Equinix agreed to acquire Verizon’s 24 data center sites, consisting of 29 data center buildings across 15 metro areas, for a total cash consideration of $3.6 billion. The deal is likely to close by mid-2017.
Why is the Deal So Important for Equinix
Acquisitions have been one of the key growth strategies for Equinix. The addition of Verizon’s facilities will prove to be beneficial for Equinix for various reasons. First, the company will be able to expand its interconnection capabilities in the U.S. 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 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 fortify Equinix’s 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.
Bottom Line
Expansion in important markets and consolidation of facilities in existing ones have been an important part of Equinix's core strategy. The company consistently strives to boost its revenue base as well as profitability, by offering upgraded technology to 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 the growing demand for data centers. To meet the rising demand for cloud services, this 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, Equinix projects 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. In addition, this deal will help the company in 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 4.9% compared with the Zacks REIT-Equity Trust industry’s decline of 1.2%.
Zacks Rank & Other Picks
Currently, Equinix carries a Zacks Rank #2 (Buy).
A couple of other stocks worth considering in the broader technology sector are Micron Technology (MU - Free Report) and Broadcom Limited (AVGO - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Micron and Broadcom have long-term earnings per share growth rate of 10% and 13.6%, respectively.
8 Stocks with Huge Profit Potential
Just released: Driverless Cars: Your Roadmap to Mega-Profits Today. In this latest Special Report, Zacks’ Aggressive Growth Strategist Brian Bolan explores a full-blown technological breakthrough in the making – autonomous cars. He also spotlights 8 stocks with tremendous gain potential to feed off this phenomenon. Click to see the stocks right now >>