Contact: Brenon Daly, Dan Golding
Two years ago, Equinix went shopping to expand its business across the Atlantic, paying $555m in cash for London-based IXEurope. The deal, which required a topping bid from Equinix to get closed, created the first truly global carrier-neutral colocation player. Now, Equinix is looking to consolidate its home US market. The company said on Wednesday it is planning to pay $689m (80% in stock, 20% in cash) for Switch & Data Facilities Company.
The acquisition, which is expected to close in the first quarter of 2010, would bolster Equinix’s presence in several key markets, as noted by my colleagues at Tier 1 Research. Among the most valuable additions would be Switch & Data facilities serving financial institutions in Manhattan and North Bergen, New Jersey, as well as Switch & Data’s facility in Palo Alto, California, which is a major point of West Coast Internet interconnection.
Combining Equinix and Switch & Data produces a datacenter provider with revenue of just about $1bn, putting it ahead of rivals Savvis and Terremark. From our perspective, we would add that Equinix also garners a premium valuation compared to those remaining providers. In fact, its valuation lines up only slightly lower than the multiple it is paying for Switch & Data, even with the 34% premium on top of the previous closing price of Switch & Data shares. Equinix’s bid values Switch & Data at 17 times trailing EBITDA, compared to 14 times trailing EBITDA at Equinix. In terms of 2010 estimates, both the current valuation of Equinix and the takeout valuation of Switch & Data come in at about 9.5 times projected EBITDA.