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Equinix (EQIX) Completes Much-Awaited Merger with Telecity

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The attempts at closing the long awaited merger deal between Equinix Inc. (EQIX - Free Report) and Telecity Group Plc bore fruit on Friday. After facing several delays, the data center company finally completed the acquisition worth roughly $3.8 billion. The cash-and-stock deal had been announced in May 2015.

"Today is a very important day for Equinix as we close the acquisition of Telecity, which is a significant milestone in our 17-year history. By increasing the scale of the Equinix interconnection platform in key markets throughout Europe, we are able to better serve global enterprises while creating meaningful shareholder value." said Steve Smith, Equinix president and CEO.

The Story So Far

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 valued at approximately $3.8 billion was 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% of the combined entity.

In Sep 2015, the tie-up between the two companies moved a step ahead. According to the filing on its website, the EU antitrust regulator was supposed to reach a conclusion on the pending acquisition by Oct 29.

In Nov 2015, Equinix announced that it had received final approval from the European Commission for the buyout, provided it sold its data centers in Amsterdam, Frankfurt and London.

The move is believed to be a part of the data center solution provider's efforts to bolster its digital marketing capabilities.

Benefits of the Acquisition

Following the transaction, Equinix will have 145 data centers across the world. The Telecity acquisition would bring more than 1,000 new customers to Equinix.

The European data center space will allow Equinix to tap the solid demand from network, content, cloud and financial services customers. Currently, Americas, APAC and EMEA contribute around 54% of Equinix's total revenue. Moreover, roughly 83% of Equinix’s revenues come from customers spread across multiple metros. 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.

Past Acquisitions

Equinix has made several important acquisitions in 2015. 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 made decent contributions toward total revenue growth.

Last Words

Expansion in important markets and consolidation of facilities in existing ones has 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 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 roughly 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 the 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 - Free Report) , CenturyLink, Inc. (CTL - Free Report) and Verizon Communications (VZ - Free Report) .

Currently, Equinix has a Zacks Rank #3 (Hold).

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