Equinix purchases Verizon's data centers for $3.6B, enhances interconnection portfolio

data center racks

Equinix made it official: It will purchase a portfolio of 24 data center sites and their operations from Verizon for $3.6 billion, deepening the data center provider's footprint in the United States and the desirable Latin America market.

The 24 sites consist of 29 data center buildings across 15 metro areas. Equinix said that the addition of these facilities and customers will further strengthen the data center providers’ global platform by increasing interconnection in the U.S. and Latin America; opening three new markets in Bogotá, Culpeper and Houston; and accelerating Equinix's penetration of the enterprise and strategic market sectors, including government and energy.

After meeting customary closing conditions, Equinix and Verizon said they expect to close the transaction by the middle of next year. Equinix will gain about 900 additional customers, the majority of which are enterprises.

The acquired portfolio includes approximately 900 customers, with a significant number of enterprise customers new to Equinix's platform. From a data center space point of view, Equinix will gain about 2.4 million gross square feet, bringing its total global footprint to 175 data centers in 43 markets and approximately 17 million gross square feet across the Americas, Europe and Asia-Pacific markets.  

News of Equinix buying the data centers should be of no surprise as a Cowen & Co. investor note indicated in October that the provider was the top candidate.

RELATED: Verizon close to selling data centers to Equinix for $3.5B, report says

By purchasing these new data center assets, Equinix will expand its global platform for enterprises by adding new markets and Fortune 1000 enterprise customers. It will also expand capacity in existing markets, such as Atlanta, Denver, Miami, New York, São Paulo, Seattle and Silicon Valley, and it provides a platform for the future expansion of the acquired data centers.

“The acquisition should benefit Equinix's enterprise initiatives, enhancing the government and energy verticals,” Jefferies said in a research note. “Though a hefty purchase price, the deal appears accretive and brings key strategic assets.”

Deepening Latin America, government customer reach

One of the key pieces of the Verizon data center portfolio is the NAP (Network Access Point) of the Americas facility in Miami. This facility has become a key interconnection point and will become a strategic hub and gateway for Equinix customer deployments servicing Latin America.

“Equinix was likely most attracted to the NAP of the Americas, and NAP of the Capital Region, two facilities Verizon acquired from Terremark in April 2011 in a deal valued at $1.4bn,” Jefferies said. “The NAP of the Americas in Miami is a key interconnection point for traffic to and from Latin America while the NAP of the Capital Region in Culpeper is designed for rigid government standards, and houses many federal clients.”

Verizon acquired the NAP of the Americas when it purchased Terremark in 2011 as part of an initiative to enhance its cloud services capabilities.

In combination with Verizon’s data centers in Bogotá and the NAP do Brasil in São Paulo, it will strategically position Equinix as a major in the growing Latin American data center and interconnection market.

An additional benefit is that Equinix will be able to better respond to the public sector segment. The sale also includes the NAP of the Capital Region in Culpeper, Virginia, a secure campus focused on government agency customers.

After completing the acquisition, 250 Verizon employees—primarily in the operations functions of the acquired data centers—will become Equinix employees.

Verizon resets focus

The sale of the data center assets to Equinix is just one of several moves that Verizon has made in recent years to fine tune the focus of the company by divesting non-core assets, and the Equinix deal is no different.

Besides selling the data center business to Equinix, Verizon sold off its wireless towers and three of its wireline properties in California, Texas and Florida to Frontier earlier this year.

Verizon said the properties it sold to Frontier were "islands” of mostly copper and some fiber assets.

What drove Verizon to sell its data center assets was that it was facing greater competition from data center specialists like Equinix and Cologix in a market segment that’s very expensive to maintain.

Lowell McAdam, CEO of Verizon, told investors during the sale of the data centers is part of a way to sell off assets that are no longer core to its business strategy.

“Inside the company, I use the term you trim the branches on the tree so the tree can be as strong as possible,” McAdam said. “Whether it was selling the smaller properties to Frontier, we took that capital and redeployed it into our wireless and wireline footprint, so this sale is another example of that.”

McAdam added that Verizon will look for “opportunities where we are sub-scale and put the money into an area where we can scale because our cost structure is critical to our long-term success.”

Verizon’s data center sale is part of a growing trend among the largest telcos. Fellow telco CenturyLink recently reached a deal to sell off its data center portfolio to a consortium led by BC Partners and Medina Capital for $2.15 billion in cash and a $150 million minority stake.

CenturyLink will use the net proceeds from its sale to partly fund a $34 billion acquisition of Level 3 Communications, which the company announced on Monday.