Instant Analysis: Equinix Buys Verizon Data Centers for $3.6 Billion

By Eric Volkman Markets Fool.com

Image source: Getty Images.

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What happened

Data center real estate investment trustEquinix (NASDAQ: EQIX) will soon be a larger company following its purchase of a set of data center assets from Verizon (NYSE: VZ). Equinix agreed to pay $3.6 billion in cash to acquire 24 data center sites and their operations.

All told, the sites contain 29 buildings, located in 15 metropolitan areas. Most of these are in the U.S.; two are located in South America, specifically Bogota, Colombia, and Sao Paulo, Brazil. Equinix will also obtain 900 customers that currently use the facilities.

Equinix expects the transaction to close by the middle of next year. Adding the Verizon assets to the REIT's current portfolio gives it 175 data centers in 43 localities, utilizing around 17 million gross square feet of space.

Equinix believes the Verizon assets will be "immediately accretive" to its results. Specifically, the company estimates that it will add $450 million in revenue and $270 million in EBITDA in the 12 months after the deal closes.

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Does it matter?

Verizon doesn't particularly want to be in the data center business, while Equinix is eager to expand. So this is an appropriate and opportunistic transaction for both parties.

In its press release, the REIT quoted CEO Steve Smith as saying -- accurately, in my view -- that "the new assets will bring hundreds of new customers to Platform Equinix while establishing a presence in new markets and expanding our footprint in existing key metros."

It's a good time to be in the data center business, as enterprises rely more and more on the services such facilities provide. Equinix has been doing well lately, with revenue and the bottom line in its most recently reported quarter both beating analyst estimates (although adjusted funds from operations -- the most important profitability metric for REITs -- slipped a little). With the Verizon buy, it's making hay while the sun shines, to quote a corny phrase, and investors should be pleased with the portfolio-expanding move.

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Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Equinix and Verizon. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.