Digital Realty, a colocation and data center provider, is acquiring Telx from its private equity firm owners ABRY Partners and Berkshire Partners for $1.9 billion, a deal that will immediately enhance its data center footprint.
As of the end March, Telx managed 1.3 million square feet of data center space operating out of 20 facilities across the U.S., of which two are owned by Telx. Interestingly, 11 of the data centers are leased from Digital Realty, one is partially sub-leased from Digital Realty and an unrelated third party, and six are leased from third parties.
Colocation space is only one part of what Digital Realty will get from the Telx deal. The company will also be able to extend Telx's data center interconnection services, including cross connect, metro connect, Ethernet connect and carrier connect, to its own customers.
A. William Stein, Digital Realty's CEO, said in a release that by purchasing Telx, they will be able to provide a deeper array of colocation and interconnection services to a well-established customer base in major metros such as New York and Silicon Valley.
Stein added that "The fact that more than half of Telx's 20 facilities are run out of Digital Realty properties further highlights the strategic fit as well as the potential incremental revenue opportunities we expect to be able to pursue as one company on a global basis."
To fund the acquisition, Digital Realty will hold a public offering of 1.5 million shares priced at $68 a share. After meeting customary closing conditions, the company expects to close the offering on July 20, with BofA Merrill Lynch, Morgan Stanley, Citigroup and Credit Suisse as joint book-running managers.
All of Digital Realty's shares, as well as a greenshoe of up to 1.575 million more shares, are being offered in connection with forward sale agreements Digital Realty closed with Bank of America North America, Morgan Stanley and Citigroup Global Markets. These will borrow and sell to the underwriters the 10.5 million shares (total) which Digital Realty Trust will deliver no later than March 17, 2016.
Proceeds received from the settlement of the forward sale agreement will be used to fund part of the Telx acquisition. Proceeds from the greenshoe, if exercised, will be used to repay outstanding debt under its global revolving credit facility.
Digital Realty has been increasing its profile in the data center and cloud services market over the past year, garnering partnerships with the likes of Level 3 Communications and newcomers like AMS-IX, which established a PoP in its 365 Main Street facility in San Francisco.
- see the release
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