Digital Realty strikes $7B deal to buy European data center operator Interxion

data center
Digital Realty buys Interxion to expand its European data center footprint. (Pixabay)

Digital Realty is boosting its European presence with a $7.15 billion deal to buy European data center operator Interxion.

The acquisition has been approved by both of the companies' boards of directors. The deal is slated to close next year once it garners shareholders' approval and passes customary closing conditions.

Digital Realty announced on Tuesday that would issue 0.7067 shares to Interxion Holding shareholders for each share they own, which comes out to about $93.48 per share based on Digital Realty's closing price on Monday. With debt, the companies said they valued the deal at $8.4 billion.

The two companies said their European footprints were complimentary. Interxion's European business consists of 53 carrier and cloud-neutral facilities in 11 European countries and 13 metro areas including as Frankfurt, Amsterdam and Paris.

Including Digital Realty's presence in London and Dublin, the combined company will offer services to approximately 70% of the gross domestic products (GDP) in Europe.

Digital Realty CEO A. William Stein will serve as the CEO of the combined company. Interxion CEO David Ruberg will be the chief executive of the combined company's Europe, Middle East and Africa (EMEA) business, which will be called "Interxion, a Digital Realty company," once the deal closes. Within a year of the closing, Ruberg is expected to leave his position as chief executive of the EMEA business.

Organizations moving their workloads to the cloud and their data to the network edge are fueling the need for more data center and colocation facilities. Services and applications such as video, IoT and, at some point, low latency 5G are also driving continued bandwidth consumption.

Hyperscale providers such as Microsoft Azure, Google and Amazon Web Services are pushing the capacity demands of data centers while telcos and enterprises are also using them to enable their business services and applications.

Along with Equinix, Digital Realty has been at the forefront of the data center and colocation boom. In October, Equinix expanded its global footprint by wrapping up a more than $1 billion joint venture to develop hyperscale data centers in Europe.

RELATED: Report: Data center M&A fast tracks towards another record year

According to Synergy Research Group, the data center sector is on track for another record year for mergers and acquisitions. Synergy Research Group's August data showed that 52 data center-focused M&A deals have closed in the first half of this year, which was an increase of 18% over the first half of last year.

The strong start pointed to another record year for M&A volume with eight more deals having closed since the beginning of July along with 14 more that have been agreed upon but are still pending, according to Synergy Research Group (SRG.)

From a historical perspective, the largest deals that have closed since 2015 were Digital Realty's pickup of DuPont Fabros for $7.6 billion in 2017 and Equinix's acquisition of Verizon's data centers in 2016. In the latter deal, Verizon sold 24 data center sites to Equinix in a transaction valued at about $3.6 billion. Equinix also bought European data center provider TelecityGroup for $3.8 billion three years ago.

Equinix and Digital Realty, which are world's two leading colocation providers, have been the most aggressive consolidators in the data center industry. All told, they have accounted for 36% of the total deal value over the 2015 to 2019 period, according to SRG.