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Digital Realty confirms acquisition of Telx

Wed 15 Jul 2015

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Despite the unintentional early leak of the deal by statistical rating organizations Fitch, the month-long-rumoured acquisition of privately-owned data centre colocation player Telx by Digital Realty has been confirmed by the latter.

Digital Realty specialises in the acquisition and development of data centres across the U.S., and has had to fight off several contenders to secure Telx into its significant and growing portfolio across the network services and DC space. Telx, which provides over 50,000 network connections across 1.3 million square feet of DC space, made its search a suitable acquisition proposal known in April.

The sale is set to close later this year at a tally of $1.886bn (£1.2bn approx.), with BofA Lynch and Morgan Stanley advising on the sale and Latham & Watkins LLP standing as legal counsel for the agreement.

At the investor site for Digital Realty the company’s CEO A. William Stein said “This transformative transaction is consistent with our strategy of sourcing strategic and complementary assets to strengthen and diversify Digital Realty’s data center portfolio and expand our product mix and presence in the attractive colocation and interconnection space,” and continued “Telx’s well-established colocation and interconnection businesses provide access to two rapidly-growing segments with long-standing customer relationships in top-tier metropolitan areas such as New York and Silicon Valley,”

Telx already leased 11 of its 20 facilities from Digital Realty, whose data centre footprint will expand by 200% after closure.

Private equity investors ABRY Partners and Berkshire Partners currently own Telx. Boston-based Berkshire Partners hold aggregate capital commitments exceeding $11bn, and retains a portfolio of assets across industrial manufacturing, transportation, fibre networks and communications, among other sectors. ABRY Partners is a private equity investment firm representing over $42bn transactions across more than 450 companies.

Digital Realty has struggled to increase its data centre presence in a market which has been consolidating around it on practically a daily basis for the last two years. Senior data center infrastructure analyst at Structure Research commented in a post prior to the confirmation of the acquisition: “Digital Realty on one hand has conceded that its colocation business has been underperforming, coupled with a relatively stagnant interconnection business,” going on to speculate that a possible Telx acquisition would ‘meaningfully alter’ the larger company’s traction in retail colocation and interconnection.

Part of the cost of the acquisition will be met by undisclosed private funders, with an additional public offering of 10.5 million shares meted at $68 per unit set to contribute to the purchase.

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