Equinix Strengthens Foothold in Europe with Zenium Buyout

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Equinix Inc.EQIX , it seems, is set to expand its data center business across different regions. In a move to spread its European operations, the company recently completed the acquisition of an Istanbul-based data center from Zenium.The all-cash deal is valued at $93 million, and was signed and closed on Oct 6, 2017.

The new data center, will be popularly known as IS2, and will help the company to meet growing demand for data center services in the region. The takeover will significantly expand Equinix's presence in Turkey as well as Europe, where Zenium enjoys a significant presence. Istanbul data center acts as a bridge between Europe and Asia consequently addressing the increasing demand for colocation and interconnection services in Turkey.

Per the definitive agreement, Equinix agreed to acquire three buildings and land from Zenium business. The IS2 data center will provide an area of approximately 1,500 square meters, with the provision to increase this to 12,000 square meters. This enables the company to proceed aggressively with its plan of developing data centers across different geographies.

Equinix stock has gained 27.9% in the last one year, against a loss of 11% incurred by the industry it belongs to.

Benefits of the Acquisition

The addition of the aforementioned facilities will be beneficial for Equinix for a number of reasons. The deal will help the company expand its data center business in Turkey. Per International Monetary Fund, Turkey has the world's 17th largest nominal GDP and a population of around 80 million. Therefore, expanding its facility in the city will attract more enterprises to opt for Equinix's data center services, leading to a revenue boost.

According to the Global Interconnection Index, Europe is projected to increase 44% per annum reaching 1451 Tbps of installed capacity by 2020. Consequently, this deal will bode well for Equinix as the expansion of data centers will strengthen its portfolio in one of the major global trade hubs and financial centers.

Additionally, Equinix believes that the buyout will help it support traffic growth between Europe, Latin America and Africa, which is anticipated to be driven by new submarine cable systems. Therefore, the company will be able to expand its interconnection capabilities across these three continents backed by this acquisition.

Bottom Line

Acquisitions have remained one of the key growth strategies for Equinix. Worldwide, the company owns 180 IBX data centers across 44 countries.

The company 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. Therefore, the company anticipates 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.

Consequently, we believe that by acquiring Zenium data center, Equinix will be in a better position to capitalize on this opportunity. Moreover, the deal will help the company fortify its global footprint and bring in additional revenues.

Nonetheless, we are concerned about the company's growing debt burden, which will adversely affect the operating results as interest expense would flare up. Also, intensifying competition from the likes of AT&T T and Verizon Communications VZ , as well as industry consolidation remain other near-term headwinds.

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

A better-ranked stock in the same industry space is Applied Materials, Inc. AMAT which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Applied Materials has a long-term expected EPS growth rate of 17.1%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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