Contact: Ben Kolada, Thejeswi Venkatesh
In its latest geographic consolidation move, colocation giant Equinix announced on Wednesday the acquisition of Frankfurt-based ancotel. Although previously an atypical acquirer, the ancotel buy is Equinix’s second purchase this month, following the pickup of certain assets from Hong Kong-based Asia Tone for $230m. Equinix recently said its dealmaking isn’t done yet. At the Deutsche Bank Securities Media & Telecommunications Conference in February, the company said it plans to place more emphasis on M&A.
Equinix didn’t disclose the price of the acquisition, but did say the valuation is in line with its projected 2012 adjusted EBITDA trading multiple. With a current enterprise value of $9.7bn, Equinix itself is valued at 11 times this year’s projected adjusted EBITDA. Assuming ancotel’s cost structure is similar to Equinix’s, we’d loosely estimate the deal value at $100-110m. Ancotel generated $21.4m in revenue in 2011, with a three-year CAGR north of 20%. The transaction adds a datacenter with 2,100 meters of capacity, 400 network customers, 200 new networks and 6,000 cross connects. Ancotel also has a presence in both London and Hong Kong.
In a departure from its usual practice of making just one acquisition per year, Equinix recently indicated that it intends to use more M&A to fuel growth. The company already dominates the American colocation market, so future M&A activity will likely continue to be overseas. Equinix has a lofty goal of being in 50 markets in the long term, with immediate priorities being India and China. The company has also expressed interest in growing its presence in South Korea and Australia.
Equinix’s international M&A, past five years
|May 16, 2012
|May 1, 2012
||Asia Tone (certain assets)
|February 15, 2011
||ALOG Data Centers*
||Rio de Janeiro
|February 6, 2008
||Virtu Secure Webservices
|June 28, 2007
|January 10, 2007
||VSNL International (Tokyo datacenter)
Source: The 451 M&A KnowledgeBase *90% stake
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After canceling a proposed IPO in 2006 and reportedly being on the block since late last year, The Go Daddy Group is now selling an undisclosed stake to private equity firms KKR, Silver Lake Partners and Technology Crossover Ventures. The deal is believed to be among the largest private equity investments in the Internet infrastructure industry, and continues an emerging trend of buyout shops acquiring mass-market hosters and repositioning them toward higher-end services.
Reportedly worth $2.25bn, the transaction lands squarely in second place among the largest PE investments in this industry. We note that the first-place prize goes to a group led by Silver Lake (and including KKR) in the $11.3bn take private of SunGard Data Systems in 2005. Silver Lake’s interest in the industry is increasing – the Go Daddy deal comes less than a year after the firm took a minority stake in a similar hoster, Brazil-based LocaWeb.
We expect that KKR and the other investors will focus on international expansion as well as investment in cloud services. Silver Lake’s stake in LocaWeb could be particularly useful. The Latin American hosting and colocation markets are seeing increasing interest (heavyweights Savvis and Equinix have each announced plans for the region). We wouldn’t be surprised if LocaWeb and Go Daddy ultimately became partners. Further, we’ve noticed that PE firms tend to refocus their mass-market hosting companies on more specialized, higher-end cloud services. LocaWeb’s cloud services could provide additional expansion opportunities for Go Daddy, which recently began a limited launch of its own cloud product. We’ll have a full report on the Go Daddy deal in tonight’s Daily 451.
Contact: Ben Kolada
Although the US hosting, cloud and colocation markets are still growing, cloud infrastructure providers are already expanding overseas. This international expansion is driven in part by enterprises demanding global cloud platforms, as well as the vendors’ desire to tap into emerging markets.
Verizon Communications’ Terremark Worldwide purchase seemingly set the stage for international expansion (although the telco was primarily attracted to Terremark’s cloud platform, the deal also provided Verizon with deeper penetration in Central and South America), and colocation and hosting providers soon followed suit. Shortly after the Terremark sale, Savvis announced a partnership in India with Bharti Airtel and claimed to be looking for similar partnerships in South America and China. Meanwhile, Savvis competitor Equinix has already moved into South America with the $127m pickup of Rio de Janeiro-based ALOG Data Centers. The company also has a presence in China with facilities in Hong Kong and through a partnership in Shanghai with Shanghai Data Solutions.
While international expansions will continue, we expect that the announcements will eventually turn from partnerships to outright acquisitions as cloud infrastructure providers look to get the most out of their investments. Equinix has already shown a willingness to make international deals, and we anticipate that the company will announce additional overseas transactions. The company could make further inroads in China by entering the Beijing market. My colleagues at Tier1 Research believe that large cities in China such as Beijing, Guangzhou, Shenzhen and Tianjin are underpopulated with datacenters and predict that these cities will see significant datacenter investment over the next five years.
Contact: Ben Kolada
One year ago, Equinix announced that it was acquiring Switch and Data in its largest-ever transaction. The deal gave Equinix an immediate presence in several new markets, and alleviated capacity constraints in existing ones. However, the acquired properties haven’t lived up to their expectations, and Equinix was forced to trim its revenue guidance as a result. (Equinix will provide more details on its Q3 results on Tuesday.)
With the revision, investors sliced $1.3bn (about 25%) in market value from the combined company. For perspective, that’s nearly twice the amount that Equinix paid for its rival. And it’s not as if the Internet infrastructure industry is anti-acquisition. Digital Realty Trust closed two major deals this year worth a combined $1.1bn. Meanwhile, its shares have climbed 20% since the year began, compared to the Nasdaq’s 8% return.
With its hands full on its consolidation play and the market having punished its stock, Equinix won’t be announcing another acquisition anytime soon. In fact, we wonder if Equinix might not be a seller before it once again returns as a buyer. We wouldn’t be surprised to see the company divest legacy Switch and Data assets that are outside its core footprint.
Contact: Ben Kolada
In the just-closed quarter, we noticed a slight dip in the number of announced deals. In fact, the deal volume has continued its slide ever since the industry hit its peak in the first quarter of 2010. That’s not to say that our readers should make like Equinix’s investors and run for the exit. True, deal volume did slide downward, but the brand names of the Internet infrastructure industry continued to make long-term investments.
The total number of transactions announced in the third quarter declined 13.5% from the second quarter and 27.3% from the first quarter of the year. However, we must note that Q1 deal volume was, in fact, artificially inflated somewhat as some deals that were put on hold during the worst part of the recession in 2009 were finally closed in Q4 2009 and the beginning of 2010 due to renewed optimism in the economy and the ability to once again access capital at reasonable rates.
Overall, the number of transactions is up year over year, with Q3 2010 yielding 23% more transactions than the year-ago period. In fact, the total number of deals announced in the first three quarters of this year has already topped the full-year total for 2009. Furthermore, well-established names in the Internet infrastructure sector, including Digital Realty Trust, Limelight Networks and TeleCity on the industry side and GI Partners, Sequoia Capital and Welsh, Carson, Anderson & Stowe on the investment side, just to name a few, came to the table in the third quarter. We’ll take a deeper look at Q3 deal volume in a report that will be included in tonight’s Daily 451 sendout.
Recent quarterly deal flow
||Number of transactions
||Percent change from previous quarter
Source: The 451 M&A KnowledgeBase, Tier1 Research