Zacks_Analysts' Blog : Equinix Completes ALOG Buyout - Analyst Blog

The leading global data center service provider Equinix Inc. (EQIX) and private equity firm Riverwood Capital have completed the acquisition of a 90% stake in ALOG Data Centers of Brazil S.A. announced in February.

The transaction will cost Equinix approximately $127.0 million in cash. Under the terms of the deal, Equinix will retain the controlling interest in ALOG, with Riverwood getting a minority stake.

Of the total contribution, Equinix has already paid $83.0 million, of which $68.0 million was for the acquisition and the rest for providing additional capital to fund future data center expansions.

ALOG serves almost 1,000 customers at two data centers in Brazil and is currently building the third facility. Collectively, the three centers are expected to comprise 67,000 square feet, with capacity for 56,000 servers.

The Brazilian data center space will allow Equinix to cater to the strong demand from its network, content, cloud and financial services customers eyeing this rapidly growing market. This deal reaffirms service providers’ preference for data centers in their race to win market share. It also gives Equinix an opportunity to tap the as yet unexplored Latin American market.

Post acquisition, Equinix will operate 95 data centers across 37 global markets and compete against Verizon Communications Inc. (VZ). Recenly, Verizon expanded its data center footprint in Latin America with the acquisition of Terremark Worldwide Inc. (TMRK), an information technology services provider and data center operator in the United States, Europe and Latin America.

Equinix delivered an impressive fourth quarter, beating the Zacks Consensus Estimates both in respect of revenue and earnings per share. The company is increasing its investments in sales and capex as it sees solid demand trends across all geographical regions.

We believe that this activity will boost sales in the upcoming quarters. The analysts are optimistic on the data center space based on continued growth of IP and Internet traffic, which Equinix can capitalize on.

Equinix is expanding its current facilities and client-base, and is also exercising fiscal discipline. The new data centers kicked off successfully, especially in Europe, and made a good contribution to overall 2010 revenue growth. We believe that the company has a decent line-up of new data centers for 2011. We are also optimistic on its recurring revenue model and current expansion plans.

Despite all the positives, we remain a bit apprehensive regarding stiff competition from networking aces like AT&T Inc. (T) and Verizon Communications Inc. European exposure is also a cause for concern. Moreover, capex growth could also impact near-term results.

Details of Equinix’s first quarter performance are expected soon, with results scheduled to be announced after the market closes on April 27, 2011.

Currently, Equinix has a Zacks #3 Rank, implying a short-term Hold rating.