Equinix's $3.6 billion buy of Telecity hints at more data-center deals

NEW YORK (TheStreet) --Equinix's (EQIX) recent $3.6 billion offer for British data-center provider Telecity Group (TLEIY) marks another sign of a buyout binge brewing in the data center industry -- to the point that some companies might feel pressured to make deals they would otherwise avoid.

The move by Equinix, based in Redwood City, Calif., is viewed by some industry observers as a sign that the sometimes sleepy data center industry is open for a potential slate of buyouts, similar to that in the semiconductor sector. Intel (INTC) announced Monday plans to acquire Altera   (ALTR) for $16.7 billion and Avago Technologies (AVGO) last week struck the largest semiconductor buyout deal for Broadcom (BRCM).

"It [the data-center industry] is consolidating as is much of the tech market," said Rob Enderle of the Enderle Group. "Firms are flush with cash and appear to be going on a buying spree to improve or consolidate market positions."

Equinix operates data-center services in 15 countries on five continents and in March announced it will open five new data centers in New York, London, Melbourne, Toronto and Singapore. Telecity, meanwhile, is strong in Europe, where its services can be found in 11 countries.

Enderle, however, noted the Equinix-Telecity deal had a particular angle to it. "This one was also to undo a prior acquisition attempt with Interxion (INXN)," he explained.

In February, Telecity made a stock buyout offer for Amsterdam-based Interxion valued at $2.5 billion and the parties even signed a definitive agreement the following month. But after Equinix entered the picture and struck a deal with Telecity, the Interxion deal was cancelled.

"This is a defensive deal that [Equinix's] management otherwise would prefer not to have to do considering the sizable price tag," said Cowen & Co. analyst Colby Synesael. "This deal was less about acquiring Telecity and more about what we expect will be other moves by Equinix competitors," said Synesael, who has a market perform rating on Equnix's stock.

Now, Synesael said that with Equinix moving to expand its global data center footprint, other rivals are likely to be looking at deals, and there is some belief that Interxion could now be a takeover target itself.

Among the companies that Synesael said could be in the market for Interxion are San Francisco-based Digital Realty Trust (DLR) and CoreSite Realty (COR), of Denver.

"This deal doesn't preclude another provider such as Digital Realty or CoreSite from going after Interxion at a future point," Synesael said.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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