Thursday, October 19, 2017

Equinix CFO: Verizon will take us to $6bn revenues, expect more fierce expansion

Keith D. Taylor talks to Data Economy on Equinix’s $3.6bn Verizon data centre acquisition, the company’s expansion plans in the Americas, Asia, Middle East and Africa, and how the colo will reach $6bn revenues.

Data centre beast Equinix is on a journey towards $6bn revenues which the company hopes to come to fruition by 2020, according to its global CFO Keith D. Taylor.

To speed up that goal, the colocation services provider has put a full stop on the Verizon’s data centre sale-off rumour mill by announcing it has entered a definitive agreement to acquire the telco’s assets.

With the transaction, which tops $3.6bn and is expected to be finished by mid-2017, Verizon is offloading 24 data centre buildings across 15 metro areas.

This brings Equinix’s total global footprint to 175 facilities across 43 markets with more than 17 million sqf of hosting floor and expanding.

Data Economy spoke to Equinix’s global CFO Taylor, the largest shareholder employee in the company and the man behind the financials of one of the world’s largest colocation players.


DE: What makes this acquisition different from others you have dealt with? 

KT: We are excited about what we acquired. What makes this an interesting move from a financial perspective is the fact that Verizon owns 85% of its assets.

21 of the 29 buildings are going to be owned assets which makes it a lot easier for us from a restructuring perspective.

The thing that is unique about this transaction is that we only bought the Americas assets.

As everyone knows, we bought TelecityGroup earlier this year and that had a lot of implications with the anti-trust in the EU Commission.

It was highly unlikely that we were going to be able to acquire all Verizon’s assets, which includes European assets, and as a result, our focus was really on the Americas and we think there will be less regulatory issues around that acquisition.


DE: How does a deal like this come about? 

KT: It is a combination of several factors that allowed us to do this transaction. One of course is scale and the financial attractiveness to it, it is pre-determined from the get go.

We have the ability to finance it as we choose, whether we use debt, equity or a combination of both and we have a great flexibility as an organisation on what we choose to do at this point in time.

The second thing that is also really important here is that this [deal] extends our move into interconnection and the ecosystem environment with the acquisition of NAP of Americas [through the acquisition of Verizon’s Miami data centre], the Colombian exchange, the Brazilian exchange and then of course government and enterprise more specifically [with the Virginia’s sites].

Then you combine these reasons with 900 customers [that Equinix gets from the deal with Verizon]. A lot of them are enterprises, and basically you get a highly attractive transaction for Equinix.

It really hits on so many of the key points that we want to continue to grow and scale as a business and you throw in $450m of revenue or thereabout, even with margins of 60%, and you can see why the market will look at this as a very attractive transaction for us.


DE: Speaking of “this point in time”, CenturyLink had its data centres up for sale a few weeks ago. That would also be quite timely. What differs CenturyLink’s portfolio from the one you just bought?   

KT: No disrespect to the CenturyLink team but the 57 assets that they had, only three of them were owned. It was a much larger portfolio but was a  less attractive portfolio to us.

We get to see all and every deal that goes across the market. That one had very little interest to us and we were not involved in any meaningful way.

The Verizon assets were much more attractive, predominately because of the NAP of Americas and the extension into South America, the Brazilian asset, the Colombian asset, and certainly the government one with Culpeper [four sites in Virgina].

This had a different feel to it. We were buying it for roughly 13 times the 2017 EBITDA, but that is after we make a relatively meaningful investment and bring their assets over to us and invest in our operating capability.

We are delighted financially; it was a more attractive financial deal for us because we own more assets.

People really wanted this portfolio, it was a highly competitive process. We knew all the parties that were interested in these assets and we are happy that we came out on top.


DE: The Telecity acquisition saw you go through some regulatory issues with the EU and you ended up having to sell eight sites. What is the legislation in the US like for a specific transaction like the Verizon one? 

KT: In the US, there is a lot more competitors, like CyrusOne, CoreSite, Digital Realty, and then a number of regional providers. We as a company do not perceive this to be an issue.

There is certainly some overlap but there are only three markets that are highly what I call interconnection oriented and that happens to be Columbia with Bogota, Sao Paulo in Brazil – but we do not think we have an issue there -, and it happens to be NAP of Americas which is in Miami, where again we do not have a very large presence as a result. From a regulatory perspective, we will be fine.

Another complicated factor, because we are now a REIT, is that when we buy real estate assets we do not typically fall under the same rules as Hart–Scott–Rodino Antitrust Improvements Act [a set of amendments to the antitrust laws of the US], and as a result, we do not feel there is the same regulatory oversight that would cause a more commercially oriented business to be focused on.

That coupled with the factor we have already had some reviews from when we did previous transaction such as the Switch and Data acquisition [worth $689m in 2009].

We were very comfortable that this should not represent a regulatory hurdle for us.


DE: How will the integration of Verizon’s data centres be done? 

KT: This integration is a lot easier [than the Telecity one] for a lot of reasons. Number one, it is effectively an asset acquisition, it comes with the people inside the data centres but what we are going to be doing is investing our own people, our own resources into these assets.

When we say there are $270m of EBITDA, that is after we make these incremental investments in the order of a magnitude of $20m to $25m.

From an integration perspective, we have a transaction services arrangement with Verizon, we want to get their revenues onto our books as quickly as possible and once we do that it is going to be a lot easier as an organisation.

Verizon is a much simpler acquisition. It is sitting on top of our most mature region, our most sophisticated system, and effectively because it is an asset acquisition it just makes it a lot easier versus trying to integrate it across a number of countries in EMEA.


Click through to the next page to read more on how Equinix is going to serve South America, what markets in the Americas, Middle East, Africa and Asia the company is attracted to, and how it all will end up being a $6bn data centre provider sitting in more than 50 markets globally.