Entries in Data Center (10)

Wednesday
Jan112012

zColo Pays $15.9m for Las Vegas Data Center

Zayo Group Expands West Coast Presence

zColo, a Zayo Group Company, announced on January 3rd that is has acquired all of the net assets of MarquisNet, a Las Vegas-based co-location provider. According to documents filed with the SEC, zColo will pay approximately $15.9m in the deal, subject to post-closing adjustments. The purchase was funded through Zayo’s revolving line of credit, which prior to the deal was $63.3m. MarquisNet represents Zayo’s 18th acquisition since its inception in 2006.

The primary asset in zColo’s purchase is MarquisNet’s data center, located at 7185 Pollock Drive in Las Vegas. The facility features 28k square feet of co-location space, Tier 1 Internet access, N+1 routing equipment and HVAC redundant design.  Including this newly acquired facility, zColo owns and operates 12 data centers in 11 markets including Los Angeles, New York and New Jersey. Zayo Group, zColo’s parent company, has indicated that it will extend its fiber network to 7185 Pollock Drive, joining AT&T, XO, Cox Communications and Sprint among the nine carriers that have a fiber connection to the facility. 

The acquisition of MarquisNet and the forthcoming fiber build into the Las Vegas facility furthers Zayo’s efforts to expand its presence out West. In December, Zayo closed on its $393m purchase of 360networks, which provided it with access to a number of new markets on the West Coast including Albuquerque, San Francisco and Tucson. It also recently completed a fiber build into the Green House Data Center in Wyoming, providing the facility with metro and long haul connectivity, and it is in the middle of a fiber network build in San Diego.

zColo commented in its press release announcing the MarquisNet purchase that among its enterprise clients there has been a surge in demand for data centers as a location for disaster recovery on the West Coast.  Las Vegas in particular is a popular destination for data center owners to build and operate thanks to its cheap land, and relative lack of natural disasters. Data center specialist Switch operates multiple properties in Las Vegas including its flagship 400k square foot SuperNap facility and it will soon break ground on a $400m project to add 600k square feet of data center space in Las Vegas.  Both Zayo and Switch attribute the increase in data center demand at least in part to the increase in cloud computing.

At a price of $15.9m, zColo paid approximately $568 per operating square foot for MarquisNet, a multiple below the average price of $751 per square foot observed in recent transactions. We have no past financial information on MarquisNet, however recent data center deals have been struck at an average of 5.7x revenue which would indicate the facility could add around $2m-$3m to zColo’s top line. Based on its 3Q11 financials annualized, zColo currently generates approximately $39m in revenue annually.  

Wednesday
Dec282011

Telcos Take to the Cloud in 2011

Data Centers and Cloud Providers Targeted Early and Often in 2011

While there were only a handful of ILEC deals to speak of in 2011, telcos of all shapes and sizes kept The Deal Advisor busy this year with ventures into data centers and cloud services. Over the past twelve months, many telcos joined a diverse group of companies ranging from Best Buy to VoIP providers to cablecos that made acquisitions in the data center and managed services space. In the deals we observed, communications providers shelled out nearly $8.2b at an average price tag of nearly 5x revenue to get a piece of these growing industries.

A trio of large publicly-traded ILECs made the biggest splashes into the data center arena in 2011, spending nearly $7.5b to acquire 3.5m square feet of data center space. Verizon got the action started with its $1.9b purchase of Terremark and its 13 data centers in January. Shortly after Verizon closed on its deal, CenturyLink picked up industry giant Savvis for $3.2b in what was the year’s largest data center deal. With the Savvis purchase under its belt, CenturyLink immediately became one of the largest data center operators in the U.S. with 48 facilities totalling 1.9m square feet. Not to be out done, Windstream announced on August 1st that it had purchased telecom services provider and data center operator PAETEC for $2.3b, picking up 7 data centers and an expansive fiber network in the deal.

While the big boys dominated the data center M&A scene, some relatively smaller, regional telcos moved into the cloud services space with a string of acquisitions in the latter half of the year. In July, New York-based Warwick Valley Telephone snatched up Philadelphia-based hosted VoIP and managed services provider Alteva for $17m. Then in November, Kansas-based telco Twin Valley Telephone acquired a majority stake in IT services and cloud computing company, ISG Technologies. Most recently, North Carolina-based ILEC North State Communications acquired a neighboring managed services provider and data center operator, DataChambers, to round out a busy year for the telcos.

While the size and scale of the data center and cloud purchases varied in 2011, the acquiring telcos shared similar motivations in making their deals. First,  the acquisitions furthered their efforts to diversify service and revenue mixes, shifting away from their reliance on traditional voice lines. Secondly, whether buying managed services providers, data centers, or both, the companies acquired portfolios of services targeted towards the higher ARPU-business customers. Lastly, through investing in data centers and cloud services, telcos are getting into businesses with attractive growth profiles.

Though projections of future growth in cloud spending and adoption range widely, all forecasts for the industry point upward. IDC estimates that spending on public cloud infrastructure will expand by a compound annual growth rate of 27.6% over the next four years, reaching $73b by 2015. Meanwhile, the Open Data Center Alliance (ODCA) expects cloud adoption amongst businesses of all sizes to triple over the next two years, with 40% of companies moving towards a cloud based computing infrastructure by the end of 2013.

The industry outlook for data centers is equally bullish, fueled at least in part by companies looking to outsource IT infrastructure to data centers. Data center industry analyst Clayton Moran expects colocation spending to increase 15%-20% in 2012, while a recent Gartner study projects that spending on data centers will hit $127b by 2015, up from $88b in 2010. 

By contrast to these rosy outlooks, telcos lost another 10% of voice access lines in 2011, and continue to face stiff competition from the cablecos, satellite providers and OTT providers for television and Internet market share. Although competition exists within cloud services and the data center space, these industries are growing. Telcos can also integrate their colocation and managed services with their traditional voice, video and Internet offerings, differentiating themselves from other communications providers.

Along with the potential for growth, moving into managed services and data centers will also bring about new challenges for telcos. The cloud services business is technology intensive and evolving rapidly, requiring providers to manage the changes in technology and to adapt quickly to clients needs. Through M&A, the phone companies have acquired the technology and expertise required to provide these cloud-based services, but managing these technologies and the business going forward is the next challenge. However, based on the flurry of M&A activity in 2011 it is a challenge that plenty of telcos are more than willing to take on.  

Friday
Oct142011

Data Center M&A Heats Up as Global Demand Rises

Spending on Data Centers to Reach $99b in 2011

The data center market has heated up over the past two weeks, with the announcement of a pair of acquisitions.  The deals come at a time when the demand for data storage continues to rise.  According to a report released Thursday by technology research firm, Gartner, spending on data center servers, storage and networking equipment will rise 13% to $99b in 2011, above pre-recession levels.

In a deal announced on October 6th, global data center provider Digital Realty Trust (NYSE:DLR) acquired a data center located in Sacramento Country from Seattle-based Telecom Real Estate Services for $30m. The property is located at 11085 Sun Center Drive in Rancho Cordova, and measures 69,000 square feet.  The center has a history of use by some large players in telecom—first MCI, then Verizon (NYSE:VZ).  Both providers used the data center as a telecom switch.

With the acquisition, Digital Realty expands its California footprint, more than doubling its presence in the Sacramento market.  The company owns and operates a 63,000 square foot property on Gold Camp Drive, also located in the city of Rancho Cordova.  The purchase however is just a drop in the bucket compared to Digital Realty Trust’s overall portfolio. The data center giant owns 98 properties throughout Europe, North America, Singapore and Australia.  Its real estate holdings combine to measure 17.3m square feet.

Based on the purchase price of $30m, Digital Realty paid approximately $435 per square foot in the deal.  The property was particularly attractive based on the fact it is fully leased on a long term basis to SunGard Availability Systems Inc.  By contrast, Digital Realty is still looking for co-location tenants in its Gold Camp Drive data center. As part of its acquisition strategy, Digital Realty seeks properties that have predictable, long-term cash flows (rents), making data centers with existing tenants locked in logical targets. 

Scott Peterson, chief acquisitions officer at Digital Realty, commented on its recent purchase. “This acquisition adds a newly renovated, high quality, and fully leased operating asset to our portfolio at an attractive going in cap rate. The property is located near our 3065 Gold Camp data center facility, expanding our presence in the Sacramento market and contributing to our revenue stream with a long term, stabilized lease.”

In addition to being fully leased, the data center’s Sacramento location is increasingly attractive for companies to store their data thanks to cheaper electricity and relatively inexpensive real estate.  Twitter, among other companies, has recently leased space in the Sacramento area.

On the heels of Digital Realty’s purchase, Denver-based Hosting.com announced that it had acquired Dallas-based managed services provider and data center operator, Neo Spire.  Hosting.com offers cloud hosting and recovery services and is owned by private equity firm, Charlotte-based Pamlico Capital.  While financial terms of the Neo Spire deal were not disclosed by the company, Golub Capital recently provided a $78m loan to Hosting.com in connection with the acquisition.

Neo Spire owns and operates data centers in both Dallas and Atlanta, located in close proximity to major fiber networks.  The connection at its Atlanta-based facility, a 50,000 square foot property, sits upon on a main fiber backbone in the city.  With its acquisition, Hosting.com’s total data center space now totals 131k square feet with a footprint in Dallas, Denver, Irvine, Louisville, Newark (DE) and San Francisco.  

While the Digital Realty purchase was more of a straight forward data center deal, there is a large managed services piece to Hosting.com’s acquisition.  Neo Spire offers a full range of hosting solutions: fully managed hosting, dedicated server hosting, private cloud hosting and colocation services. In addition, Neo Spire offers a compliance based approach to network and data security framed around the PCI Security Standards that helps companies navigate complex industry and government regulations.

Hosting.com has suggested that it will look to cross-sell its new Neo Spire clients with its own portfolio of cloud services, specifically its cloud replication solution that provides offsite data protection and disaster recovery. In late August, Hosting.com launched its new data loss prevention service that utilizes VMware to enable automated replication of a customer’s virtualized data from a Hosting.com data center, to a recovery site.

Looking back at the M&A in data centers this year to date, 121 properties measuring near 4.4m square feet have been dealt in selected transactions. While price tags were not disclosed on a number of the acquisitions, the priced deals have totaled near $5.5b. Based on these numbers, Gartner’s bullish outlook for the data center market is reinforced.  

Monday
Aug222011

NetTALK Adds Revenue Streams with Data Center Purchase

VoIP Provider to Offer Cloud Hosting and Managed Services

NetTALK.com (OTCBB:NTLK.OB) is diversifying its services once again. A provider of VoIP services and products, netTALK.com has purchased a 22k square foot data center in Miami from Core Development Holdings Corporation for $2.7m. The Miami-based company’s acquisition is the most recent purchase in an extremely active data center market. Perhaps the most strategic asset included in the deal is a 150-foot, 4G enabled cell tower that will complement netTALK’s new business venture into wireless.

A registered CLEC in over thirty states, netTALK was founded in 2008 using a similar business model to the more publicized MagicJack. Its flagship device, the DUO, allows customers to connect their phones to the Internet from a computer, or directly through a router—a feature MagicJack lacks. NetTALK charges about $70 for the DUO and $30 per year for service—which includes unlimited voice minutes. While its annual revenues will likely surpass $2m in 2011, up sharply from just under $600k in 2010, the company continues to operate at a loss. Through adding new revenue streams, netTALK aims to reverse this trend.

NetTALK’s entrance into the data center space marks another move in its strategy to diversify its revenue streams. The CLEC recently inked a multi-year deal with wireless wholesaler LightSquared to gain access to its 4G-LTE network. NetTALK plans to brand and sell its own wireless voice and data packages to complement its wireline VoIP offerings.

In the Miami data center, newly named the netTALK Cloud Center, netTALK acquires a property currently occupied by major players in telecom—Sprint Nextel Corp, Fibernet, Qwest/CenturyLink, AT&T Wireless and Verizon Wireless among others. In addition to operating the data center and providing cloud hosting and other managed services, netTALK will also use the property to provide connectivity for its wireless customers, courtesy of the data center's 4G enabled cell tower.

"Building on our recently-announced multi-year wholesale agreement with LightSquared, this facility provides us with additional capacity, power efficiencies and equipment such as a high-bandwidth antennae, which are key to our strategic growth plans, current and future, including television and wireless 4G transmissions,” commented netTALK President Anastasios Kyriakides.

NetTALK is attempting to replicate in wireless what it already offers through wireline—low cost phone service to customers anywhere in the United States and Canada. In the next year, it will add wireless voice and mobile broadband to its arsenal of services thanks to its LightSquared agreement and cell tower purchase. According to Kyriakides, the company is also developing a television product—netTALK TV—that will round out its triple play offering.

NetTALK’s $2.7m acquisition is the most recent purchase in an active data center market. Telx, a leading data center operator, announced in early August that it agreed to be purchased by two private equity firms in Boston, while telcos TDS and Centurylink finalized their acquisitions of OneNeck IT Services and Savvis in July. NetTALK recently confirmed to JSI Capital Advisors that it plans to expand its data center footprint in the future. 

The opportunity for growth in data centers explains why many buyers are surfacing. According to Tier1 Research, revenue generated by data center operators will reach $8.1b in 2011, up from $5.7b in 2009—a 42% increase over two years. For netTALK, its data center purchase could prove even more beneficial, providing it not only with revenues from network operations and cloud hosting, but with wireless revenues as well.  

Wednesday
Aug102011

Telx Group Nixes IPO Plans for a Private Equity Deal

ABRY Partners and Berkshire Partners Agree to Purchase Data Center Operator

The Telx Group Inc. opted against its plans to go public on Monday, agreeing instead to be purchased by a pair of Boston-based private equity firms. ABRY Partners and Berkshire Partners will acquire the New York based company, with the deal set to close within 30 days. In Telx, the firms will acquire one of the largest data center operators in the U.S., which has its eyes set on even more domestic and global growth.

Founded in 2000, Telx initially operated just one data center in New York City, but has since grown its footprint to include 15 facilities across the United States. Telx leases 14 of the 15 facilities that it operates, including 10 through an agreement with Digital Realty Trust. It provides interconnection and data collocation services to a laundry list of 900 clients, including many of the big boys in telecom— AT&T, Verizon, Qwest, Sprint and Clearwire. The strategic placement of its facilities in nine tier-1 markets along multiple, major international and domestic fiber routes enables it to connect with nearly 300 communications service providers and drives the demand for its services.

Telx initially filed for an IPO back in March 2010 under the leadership of its previous owner, private equity firm GI Partners, but the firm ultimately found a better offer in the private market. Telx management is confident that the ABRY and Berkshire deal provides it with the best growth opportunities in the future.

"We decided to sell the firm to these folks based on their support of the company, of the industry and their ongoing interest in investing in the platform and taking Telx to become a larger global provider of data center and connection services," said Eric Shepcaro, ceo of Telx. He went on to add that Telx’s goal is to compete globally with leading data center provider, Equinix (Nasdaq:EQIX).

Telx has grown its client base and top line impressively over its 11 year history, but it has yet to turn a profit. From 2007 to 2010 its revenue rose from $50.7m to $130m—a compound annual growth rate of 37%—while its client base expanded from 495 to 884 customers. Though still not profitable, Telx’s annual net losses have steadily declined from over $36m in 2007 to $200k in 2010, as it achieves higher utilization of its facilities through new clients and increased usage from customers. By comparison, when Equinix was generating similar revenues back in 2003-2005, it was posting net losses of around $60m to $80m per year.

ABRY’s purchase of Telx represents its second major investment in enterprise IT in the past few months. In May, the private equity firm invested $176m in managed hosting provider, Datapipe. While Datapipe operates 6 data centers around the world, it also specializes in managed hosting services, which Telx does not, creating an opportunity for a partnership between the providers. It also maintains a global footprint, where Telx looks to expand in the future.

While the financial terms of the deal have not been made public, the abundance of recent data center deals provides us with a basis to make some estimates. The Telx facilities’ operating space of 626k square feet represents the largest footprint of any data center acquisition over the past year aside from Savvis. From a size perspective, Telx is most comparable to Terremark--purchased by Verizon--which operated 567k square feet across 13 facilities at the time of its acquisition. While the deal was done at 5.4x revenues, Terremark also offered a variety of managed hosting services that Telx does not, pointing to a lower multiple for the Telx deal.

To find a prior M&A target that offered a similar mix of services to Telx, we need to go back to Equinix’s purchase of Switch and Data Facilities, which closed in May 2010. Switch and Data, similar to Telx and Equinix, specialized in data center operations, not in providing managed IT services. Switch and Data also generated similar revenue per operating square foot to Telx at the time it was purchased ($227 to $208) in a deal that was done at 3x revenue. If ABRY and Berkshire Partners paid a similar multiple, the price tag on Telx would be around $390m.

While the financials of the Telx deal remain uncertain, it is clear that the company will be involved in more M&A in the future—the next time around as a buyer.

"As we look out there selectively, whether it would be new points in the U.S. or globally, we'll have ability and wherewithal to become more acquisitive over next several years," said Shepcaro. "Today, there is one global provider, and that's Equinix. Clearly, we believe there should be a number two."