Equinix Expands In Europe, Buys Assets From ICT-Center AG

It seems that Equinix Inc. EQIX is firing on all cylinders to expand its data center business across different regions. The company recently announced an agreement to acquire ICT-Center AG’s Zurich-based data center operating business in Switzerland.

ICT-Center AG’s Zurich data center is besides Equinix's existing Zurich International Business Exchange (IBX) data centers – ZH2 and ZH4. The company intends to incorporate ICT data center business into its existing ZH4 data center.

Per the agreement, Equinix will pay something lesser than $5 million for the asset purchase. The agreement was inked on Feb 1 and is anticipated to close in early April.

The deal marked the company’s second European acquisition this year. Notably, last month, Equinix had announced the completion of the acquisition of IO UK's data center operating business in Slough, United Kingdom.

Buyout Makes Sense for Equinix

The addition of the aforementioned facility will prove to be beneficial for Equinix for various reasons. The deal will help Equinix to expand its data center business in the country at a very economical cost of just $5 million.

Per the company, the acquisition will “add approximately 60 cabinets of sold capacity and a total colocation space of approximately 230 cabs.” Additionally, the deal will enhance Equinix’s existing large number of network customers. Currently, Equinix’s Zurich and Geneva data centers facilities provide colocation services to more than 325 companies.

Switzerland has been ranked as the most competitive economy by World Economic Forum while as per European Union it is the most innovative country. Therefore, with this acquisition the company will be able to expand its interconnection capabilities in this key European country.

Equinix’s Zurich data centers campus which includes ZH1, ZH2, ZH4, ZH5 can reach 90% of Europe within 20 milliseconds, thereby making it ideal for companies with multiple European offices.

Acquisitions – A Key Growth Strategy

Acquisitions have remained one of the key growth strategies for Equinix. Last year, the company completed the acquisition of Telecity for $3.8 billion, thus becoming the number one European data center operator. Moreover, so far this year, the company has completed one European acquisition and is in the middle of the second one.

The company is also expanding its data center business in other regions also. Last December, Equinix entered into a deal to buy certain data center assets from Verizon Communications Inc. VZ, which is anticipated to complete by mid 2017. With this acquisition, the company will be able to expand its interconnection capabilities in the United States and Latin America.

Equinix made several important acquisitions in 2015 as well. In Jan 2015, Equinix acquired Nimbo – a leading professional services company, primarily focused on enabling enterprises to develop and implement hybrid cloud. In September last year, the company commenced a cash tender offer for all issued and outstanding shares of Tokyo-based Bit-isle through its Japanese subsidiary. All these acquisitions have made decent contributions toward total revenue growth.

Bottom Line

Expansion in important markets and consolidation of facilities in existing ones have been an important part of Equinix's core strategy. Equinix continuously strives to boost its revenue base as well as profitability by offering upgraded technology to attract clients. Moreover, the recurring revenue model has provided much-needed support to the company's revenue stream over the years. The company's cloud and IT service businesses are its fastest growing segments and account for roughly one fourth of the total revenue.

Further, Equinix remains positive on growing demand for data centers. To meet the growing demand for cloud services, the global interconnection and data center company is expanding its IBX data centers globally and gaining popularity among tech companies looking for data management. Thus, the company expects its total addressable market for retail data centers to increase at a CAGR of 8% from 2013 to 2017 and reach $24.0 billion. Based on this projection, Equinix projects a revenue growth rate of 10% through 2017.

Therefore, we believe that by acquiring data center assets, Equinix will be in a better position to capitalize on this opportunity. Furthermore, the acquisitions will help the company to further strengthen its global footprint and bring in additional revenues.

Shares of Equinix have been steadily trading higher on a year-to-date basis. The stock generated a return of approximately 5.7% compared with the Zacks REIT-Equity Trust industry’s return of just 1.5%.

Currently, Equinix carries a Zacks Rank #3 (Hold).

A couple of better-ranked stocks in the broader technology sector are Applied Optoelectronics, Inc. AAOI and NVE Corporation NVEC, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Optoelectronics has witnessed upward estimate revisions for 2017 and 2018 in the last 7 days and has surpassed the Zacks Consensus Estimate thrice in the trailing four quarters with an average positive surprise of 116.49%.

Estimates for NVE Corporation have also moved up in the last 60 days. It has surpassed the Zacks Consensus Estimate in the trailing four quarters with an average positive surprise of 14.05%.

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