Digital Realty Doubles Footprint with Major Buy

By Gail Kalinoski, Contributing Editor

Three months after Digital Realty Trust Inc., confirmed it was buying privately-owned Telx, a provider of colocation, interconnection and cloud solutions, the data center REIT has closed on the $1.9 billion deal that will double its footprint in the rapidly-growing colocation business.

William Stein, Digital Realty

San Francisco-based Digital Realty, the largest data center REIT and a global provider of data center solutions, acquired Telx, a New York company, from ABRY Partners and Berkshire Partners. Telx will now operate as Digital Realty’s colocation and connectivity line of business.

“The combination of Digital Realty’s and Telx’s portfolios of data centers and capabilities gives customers the platform they need to grow and compete in a data-driven world. Our focus on openness, agility and exceptional service will provide a foundation for new business growth for our customers,” William Stein, Digital Realty’s CEO, said in a prepared statement. “This   transformative acquisition is a significant step forward for our strategy of delivering an unparalleled range of data center solutions, real estate acumen and financial strength to create unrivaled choice and value, when and where our customers need it.”

The company, which has data centers throughout North America, Europe, Asia and Australia, said in a statement the Telx acquisition builds on its “technical real estate expertise and expansive global reach, while satisfying customer demands for new products and services.”

Digital Realty raised gross proceeds of approximately $1.9 billion of debt and equity capital to fund the Telx acquisition. Last week, Digital Realty sold 10.5 million shares and received gross proceeds of $714 million. Earlier this month, Digital Delta Holdings, a wholly-owned subsidiary of Digital Realty, issued a total of $950 million in five- and 10-year notes. On Aug. 24, Digital Realty generated gross proceeds of $250 million after closing on a public offering of 10 million shares of preferred stock at $25 per share.

The acquisition comes at a time when more companies are seeking collocation services rather than building their own data centers because of the cost, according to JLL’s annual Data Center Outlook.

“Colocation is the choice for more enterprise businesses that had previously built, owned and operated their own facilities due to the upfront capital expenditures associated with building, maintaining and updating the equipment to stay current with new technology efficiencies,” Mark Bauer, West Region lead for JLL’s Date Center Solutions, said in a prepared statement about the report.

The increased shift from owned facilities to the third-party market is leading to an increase in mergers and acquisitions like the Digital Realty and Telx deal, the report noted.

“We’ve seen a large acquisition spree take place in the sector which has included many of the publicly traded data center REITs. They’re buying to increase their footprint, but also to be able to provide solutions, cloud security and connectivity. This gives companies with larger platforms access to offer more services with a larger geographic footprint. In the end, that’s going to benefit the user and increase the reach for those providers,” Bo Bond, Central Region lead for JLL’s Data Center Solutions, said in a prepared statement.