Wrapping 2016 up with another blockbuster deal for the data center industry, Equinix has agreed to acquire a portion of the data center portfolio Verizon Communications has been attempting to sell since at least last year.
The Redwood City, California-based data center services giant said Tuesday it will pay $3.6 billion in cash for 24 of the telco’s data center sites, including most of the sites Verizon got its hands on in 2011, when it acquired Terremark Worldwide. There are 29 data center buildings on those sites altogether located across 15 metro areas in the US and Latin America.
The deal, expected to close by mid-2017, will add about 2.4 million gross square feet to Equinix’s global footprint, bringing its asset base to a total of 175 data centers and 17 million square feet across 43 markets.
Reports that a big Verizon data center portfolio was on the market started emerging last year, and Verizon confirmed it was considering a sale earlier this year. In recent months Equinix emerged as the most likely buyer, as we reported in October.
Verizon is the second major telco to offload data centers this year. Last month, CenturyLink announced a deal to sell its entire 57-data center colocation business to a joint venture between private equity companies BC Partners and Medina Capital.
Equinix didn’t buy all data centers Verizon was hoping to sell, cherry-picking sites that were a good strategic fit. The telco has been looking to divest more than 50 facilities, including assets in Europe and Asia, but Equinix was only interested in North and South American markets.
The two most important sites that will be changing hands if and when the deal closes are the massive NAP of the Americas facility in Miami and the four-building NAP of the Capital Region campus in Culpeper, Virginia, just outside of Washington, D.C. The Miami data center is a key nerve center for network traffic between the US and Latin America, while Culpeper reportedly houses a lot of IT infrastructure for the US government.
Not only are they important strategically, the two sites together are responsible for more than half of the $450 million in revenue the 24-site portfolio generates annually, Equinix executives said on a conference call Tuesday.
A Gateway to South America
NAP of the Americas is a “gateway to South America,” Karl Strohmeyer, Equinix president for the Americas, told Data Center Knowledge in an interview. “It’s certainly one of the key strategic prizes.”
The former Terremark facility functions in a similar way Equinix has designed most of its data centers to function. It is an interconnection hub for carriers and other types of service providers, who link their networks there to expand their reach and optimize traffic routes for their customers. The 90 or so global networks that interconnect at the site provide access to more than 150 countries, Strohmeyer said.
The deal significantly expands Equinix’s ability to attract North American companies that want to serve Latin American markets, Jabez Tan, research director at Structure Research, said in an interview.
Latin America was a $445 million retail colocation market in 2015, projected to more than double by 2020, according to Structure Research, which expects a nearly 17 percent annual growth rate there. For comparison, the US market was $8.2 billion last year, projected to reach $14.3 billion in 2020. While the US market grew 15 percent between 2015 and 2016, Structure expects growth to slow down to 12 percent for the next four years.
In addition to the network gateway in Miami Equinix acquired Verizon’s data centers in São Paulo and Bogotá.
The São Paulo facility, called NAP do Brasil, adds to its two existing data centers in that market and a third that’s under construction. The company also has data centers in Rio de Janeiro, while Verizon’s Bogotá site gives it an entry into a whole new market.
Both São Paulo and Bogotá are also important from the standpoint of intercontinental connectivity. Most submarine cables linking South America to other parts of the world land in Brazil and many land in Colombia.
A Government and Enterprise Hub in Virginia
While Equinix has always been at the core of the enormous Northern Virginia data center market, Culpeper, located further southeast from Washington and Virginia’s largest data center cluster in and around Ashburn, is a new location for the service provider.
The former Terremark campus in Culpeper has four data centers and enough space and power to build a fifth one, Strohmeyer said.
The campus serves both government agencies and private enterprises, but the percentage split between those two customer categories is unclear. Strohmeyer declined to share any details about customer make-up at individual sites.
Enterprises are a Key Growth Market
Growing its government and enterprise customer numbers has been a recent strategic priority for Equinix, which has traditionally focused on attracting service providers, content, and financial services companies to its interconnection-rich campuses.
The Verizon portfolio being acquired ticks both of those boxes. It serves about 900 customers, many of whom are enterprises that are new to Equinix.
Another asset in the portfolio that helps that cause is Verizon’s Houston data center. This will be Equinix’s first site in Houston, a major market for service providers looking to tap into the oil and gas industry and one the company has been eyeing for some time. “Houston has been a blue dot on our map for a while,” Strohmeyer said.
Here’s a list of all locations included in Equinix’s Verizon data center deal:
- Atlanta (Atlanta and Norcross)
- Bogotá, Boston (Billerica)
- Chicago (Westmont)
- Dallas (Irving, Richardson-Alma, and Richardson-Pkwy)
- Denver (Englewood)
- Los Angeles (Torrance)
- Miami (Miami and Doral)
- New York (Carteret, Elmsford, and Piscataway)
- São Paulo
- Seattle (Kent)
- Silicon Valley (Santa Clara and San Jose)
- Washington, D.C. (Ashburn, Manassas, and Herndon)
All Set in Europe and Asia
Given Equinix’s recent acquisitions in Europe and Asia, it’s not surprising the company did not pursue Verizon’s assets in those regions.
European antitrust regulators forced Equinix to sell eight data centers in Europe in exchange for approval of its blockbuster $3.8 billion acquisition of TelecityGroup, which closed earlier this year. It sold those facilities to San Francisco-based Digital Realty Trust, which recently emerged as one of its biggest competitors.
“We feel like we’ve got enough to handle there,” Strohmeyer said about Europe.
In Asia-Pacific, Equinix acquired the Japanese provider Bit-isle last year and recently launched a new data center in Sydney. “From a portfolio stand point [Verizon’s] presence in Asia was very limited,” he said.
According to Tan, an expert on Asia-Pacific data center markets, Equinix already has a strong position in core Asia-Pacific markets, such as Singapore, Hong Kong, Tokyo, and Sydney, and does not appear to want to move into emerging markets in the region.
REIT Status Fortified
Another box Equinix will be able to tick once the acquisition closes is strengthening the case for its status as a Real Estate Investment Trust. The company started operating as a REIT in the beginning of this year. In exchange for substantial corporate tax benefits, a company must meet a list of criteria to qualify for REIT status, which include investing at least 75 percent of its assets in real estate and cash.
Equinix leases many of its facilities from wholesale data center providers, such as Digital Realty, but will own the real estate for 21 of the 29 data centers it is buying from Verizon.
The company has been wanting to switch from a predominantly leased asset model to a predominantly owned one, and the acquisition will shift it from deriving 33 percent of its revenue from owned assets to 40 percent, which is where it really wants to trend, Tan said.
Corrected: A previous version of of this article erroneously said Verizon hadn't expanded capacity at the Culpeper campus in recent years. It had, by 60,000 square feet in 2015.