On Tuesday, July 14^th, Digital Realty Trust Inc. (NYSE: DLR) announced that it had reached an agreement to acquire Telx Holdings, Inc. from private equity firms ABRY Partners and Berkshire Partners for approximately $1.886 billion. 

 Valuation Analysis and Deal Metrics

Transaction Facts

• Deal will immediately enhance Digital Realty’s data center footprint.
• Telx managed approximately 1.3 million square feet of data center space across the United States, as of March 2015.
• The deal will be funded partly through a public offering of 1.5 million shares priced at $68.00 per share.
• Telx’s 1Q 2015 annualized operating results - revenues of $334 million, core EBITDA of $122 million and monthly recurring revenue of $114 million. 
• Transaction is expected to close by the end of 2015.

Strategic Considerations

• Digital Realty’s colocation footprint is expected to double as a result of the transaction.
• 11 of the 20 data centers that Telx manages are leased from Digital Realty.
• Telx’s colocation and interconnection capabilities should be a good fit combined with Digital Realty’s expansive wholesale platform.
• Combination will allow Digital Realty to provide greater flexibility and options to its customers.

JSICA’s Take

• Deal should allow Digital Realty to be able to provide a larger selection of colocation and offer interconnection services to a well-established customer base in major metro areas like New York and Silicon Valley.
• Throughout the past year, Digital Realty has continuously been adding to its presence in the data center and cloud services market.