Ever since Cisco Systems Inc. (NASDAQ:CSCO) announced its
bold move into data centers in March, the deals keep coming. The latest: Equinix Inc. (NASDAQ:EQIX)
agreed to buy Switch & Data Facilities Co. (NASDAQ:SDXC) for $689 million in a tax-free cash and stock deal, expanding the
infrequent acquirer into to 16 new markets across North America.
The deal gives Equinix a chance to quickly expand (data centers can take years to build) in a market where it says "demand continues to outpace supply." Also, a Tier1 Research analyst
told The Wall Street Journal that using stock to make the deal is a smart move because "you can't pay a construction company in stock."
The Foster City, Calif., company will integrate Switch and Data's data center business and operations, including its 34 data centers in 22 markets in the U.S. and Canada, bringing Equinix's total global footprint to 79 data centers in 34 markets. Equinix counts Google Inc. (NASDAQ:GOOG), IBM Corp. (NYSE:IBM) and Sprint Nextel Corp. (NYSE:S) among
its customers.
Industry Web site Data Center Knowledge notes that in recent months Tampa, Fla.'s Switch & Data has
sharpened its focus on hosting high-value trading applications for financial institutions, a key strategic market in which Equinix is among the market leaders. No assets are expected to be divested as a result of the deal. In an
SEC filing addressing frequently asked questions, Equinix said "We do not believe that the transaction presents any competition concerns."
Financial terms
Switch & Data stockholders can elect to receive either 0.19409 shares of Equinix stock or $19.06 in cash (a 32% premium to Tuesday's close) for each share of Switch & Data stock. The overall consideration to be
paid by Equinix will be 80% Equinix stock, 20% cash. In addition, a portion of the cash consideration payable to Switch & Data stockholders may be replaced by an equivalent amount of Equinix stock to the extent necessary to enable the transaction to qualify as a tax-free exchange. Equinix said Switch and Data`s directors, executive officers and certain significant stockholders agreed to vote shares representing 35% of Switch & Data`s outstanding stock in favor of the deal.
Advisers
Equinix was advised by J.P. Morgan Securities Inc. and counseled by Davis Polk & Wardwell LLP. Switch & Data's lead financial adviser was Piper Jaffray & Co. Deutsche Bank Securities Inc. and RBC Capital Markets served as co-advisers; while legal counsel was Holland & Knight LLP. Raymond James & Associates Inc. provided a fairness opinion to Switch & Data's board.
The deal is expected to be completed in the first quarter of 2010, pending approvals. In after hours trading Equinix stock was down about $.6% to 93.21 -- its 52-week range is $32.72 to $100.20. Equinix has a market cap of about $3.8 billion. Switch & Data stock rocketed more than 26% in after hours trading to $18.20 -- its 52-week range is $3.92 to $15.17.
We mentioned that Equinix, which announced its third quarter
revenue increased 24% over the same period last year, is an infrequent acquirer. In 2007, the data center provider entered Europe, acquiring counterpart IX Europe plc for $481.3 million. Early last year, Equinix acquired acquire the Netherlands based peer Virtu Secure Webservices BV for $48 million.
There's bound to be more deals in the data center market as demand grows and we'll keep an eye out. What we have so far:
- Cisco acquired privately held Tidal Software Inc. for $105 million,
- Oracle Corp.'s (NASDAQ:ORCL) $7.4 billion acquisition of Sun Microsystems Inc. (NASDAQ:JAVA) -- here's the latest on EU approval,
- EMC Corp. (NYSE:EMC) completed its $2.2 billion acquisition of Data Domain Inc. and
- Emerson Electric Co. (NYSE:EMR) is acquiring Avocent Corp. (NASDAQ:AVCT) for $1.2 billion.
And don't forget, data center deals are for
smaller companies, too. -
Baz HiralalAlso see:Emerson Electric fuels data center deal trendCheaper buys than BrocadeDigital Realty rides data center demand
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