Fueled by two recent deals, data-center operator Equinix is powering up its overseas presence.Equinix ( EQIX ) is a data-center and colocation provider. It offers operations space, storage space, cabinets and power for corporate and other enterprise customers. Its interconnection offerings include Equinix Cloud Exchange, which enables simultaneous, direct connections to multiple clouds from a single port.
In May it agreed to buy U.K.-based peer TelecityGroup in a cash and stock deal for about $3.6 billion. This would vault Equinix’s footprint in Europe and enhance its portfolio of offerings.
Soon after, in early September, Equinix said it made a tender offer to buy Tokyo-based Bit-isle for $280 million in a move to lift its position in the Asia-Pacific, the company’s fastest-growing region, and especially improve Equinix’s sales in Japan, where demand is growing.
Equinix is eying more deals: “As it relates to the broader M&A landscape, we have our eye on the consolidation activity happening in our industry, and we will continue to be both proactive and highly selective in pursuit of opportunities that we believe complement our strategy and create significant shareholder value,” CEO Steve Smith said in his second-quarter conference call.
Equinix Growing Demand Drives More
Pursuit of acquisitions is heating up with demand. “The general demand for these (data center and colocation) services has been very strong across the industry for several quarters,” Stephens analyst Barry McCarver told IBD. “The majority of companies still operate data centers in-house, but want to outsource because it’s cost-efficient. Equinix provides a high level of interconnectivity in their data centers. The growth of the cloud has been a very big driver for Equinix. I don’t see any signs that things are slowing.”
Equinix connects more than 4,800 companies directly to their customers and partners inside its data centers.
Businesses leverage the Equinix interconnection platform in 33 markets across the Americas, Asia-Pacific, Europe, the Middle East and Africa. Customers include carriers, mobile, cloud and IT service providers, content providers and financial companies.Amazon.com ( AMZN ),eBay (EBAY ) and Yahoo (YHOO) are among them.
Equinix said in May that the Internal Revenue Service issued a “favorable private letter ruling” in connection with its conversion to a real estate investment trust for federal tax purposes, effective for its 2015 taxable year.
Business has been brisk. The company has a long-running streak of double-digit quarterly sales gains, and earnings growth ticked up the past couple of quarters. In the second quarter, earnings rose 368% to $1.03 a share. Sales increased 10% to $665.6 million, marking its 50th quarter of consecutive revenue growth, the company notes. Analysts polled by Thomson Reuters expect earnings of $4.72 per share for all of 2015, up from Equinix’s pro forma $3.08. They see a 32% rise in 2016 and a 21% gain in 2017. McCarver says the company’s conversion to a REIT combined with its strong growth has been a “big driver for the stock.”
Equinix expects the Telecity deal to close in the first half of 2016. It’s received approval to work with the European Commission to secure clearance for the acquisition.
Dublin, Stockholm Calling
The deal should bring a lot to the table. On a conference call disclosing the proposed buy, CEO Smith said: “This transaction provides the opportunity to increase our network and cloud density to better serve customers who are increasingly moving to highly interconnected, global data centers.”
It adds seven new markets, including Dublin and Stockholm, and will expand capacity in existing metros where the company sees “significant demand,” such as Amsterdam and London, he said. In the U.K., for example, Telecity’s assets will add “diverse data-center capacity” in areas such as Central London and Manchester.
Smith added that the transaction will propel “significant synergy and value creation that will enhance shareholder value.”
The Bit-isle acquisition combined with Equinix will create the fourth-largest data-center operator in Japan, says Equinix. Once the deal closes, Equinix will gain five data centers in Tokyo and one in Osaka close to the existing Equinix International Business Exchange (IBX) data centers in Japan.
“The combination will accelerate Equinix’s cloud and enterprise ecosystem growth as well as create significant cross-selling opportunities,” Equinix said.
The tender offer for Bit-isle runs through Oct. 26, conditioned on, among other things, approval by holders of more than 66% of Bit-isle shares.
Equinix expects to complete the acquisition by early 2016
The company has also fared handsomely on its own. “We delivered a strong first half of 2015 and are delighted to see momentum across all our verticals and geographies as customers continue to select Platform Equinix as a key enabler of IT transformation,” Katrina Rymill, vice president of investor relations, told IBD.
What’s driving the growth?
“Inside our data centers, networks, clouds, IT services companies and enterprises are … putting systems, applications and data closer to end users,” Rymill said. “We are experiencing continued momentum across the cloud ecosystem, which drove strong bookings this (second) quarter as major cloud players such as AWS (Amazon Web Services), Datapipe,Oracle ( ORCL ) andServiceNow (NOW) continue to expand. Connections to cloud providers from buyers across all vertical markets is a strong driver of interconnection, and we also see growth in connectivity among content and network companies as the exponential growth in data drives the need for more peering.”
In an SEC filing, Equinix described the way its services work this way: “Internet users on different networks are able to communicate with each other through interconnection between independent networks. For example, when a person sends an email to someone who uses a different provider for his or her connectivity, the email must pass from one network to the other to get to its final destination. Equinix provides a physical point at which that interconnection can occur.”
Said McCarver: “What’s unique (about Equinix) is it’s always been focused on companies that need to be highly interconnected. They have been specifically focused on selling to industries like financial services, cloud services or media that need to be touching other networks and touching their customers.”
Equinix is part of IBD’s Internet-Network Solutions industry group. It boasts a 96 Composite Rating out of a possible 99 and ranks No. 2. The group is led byLogMeIn (LOGM), No. 1 with a 98 Composite Rating.