The giants of European colocation fight it out

Back on February 9th, Telecity Group PLC announced an impending all-share merger with Interxion Holding NV. Both major players in the European data centre market, Telecity with 38 data centres over 12 cities and Interxion with 39, this merger would create a single dominant European player valued at more than £3bn.

Specifically looking at London, the facilities gained by each party would compliment each other – Telecity gaining an established City site and Interxion expanding to the Docklands, where Telecity is extremely strong.

Viewed at the time by many as a potential defensive move against US colocation giant Equinix, the Financial Times write up included the following quote:

I would be surprised if Equinix would be happy to let this deal proceed.

Milan Radia, analyst at Jefferies

As predicted, on May 7th Telecity’s board announced they had received an approach from Equinix regarding a potential offer valued at around £2.3bn, throwing into doubt the Interxion merger.

The Board of Equinix believes that a potential transaction with TelecityGroup would create a more compelling combination than the proposed merger with Interxion Holding N.V. and would deliver greater value for TelecityGroup shareholders.

Equinix

A truly international operator with over 100 facilities across 5 continents, Equinix is a UK market leader in premium colocation. Its three facilities in Slough feature high build specification, impressive carriers and institutions on site and low latency links back to the city, making them the de facto choice for financial institutions. In fact, EXN frequently recommends Equinix’s LD5 with Interxion LON1/2 as an ideal production/DR pair for financial hosting.

Following further rumours of a competing bid, Digital Realty Trust Inc. yesterday stated they do not intend to make an offer. DRT are another US data centre provider who would benefit from the addition of Telecity’s European retail colocation portfolio – specifically looking at London, both DRT and Equinix lack a presence in the Docklands, where Telecity is strongest.

So what does this mean for London colocation? Industry consultant Tim Anker has crunched the numbers and prepared this report, which predicts a combined Telecity/Equinix entity could increase its share of the London carrier neutral retail colocation market to a whopping 40%.

Telecity Sovereign House – formerly Redbus

No matter which consolidation goes ahead, what looks certain is some occupiers will face cross-connect pricing restructuring in the future, likely to their disadvantage.

The industry is no stranger to mergers and acquisitions of this kind. On January 23rd 2006, Telecity announced the successful completion of their merger with competitor Redbus Interhouse plc and later that year acquired Globix Ltd, moves that expanded their facility portfolio and technical staff and kick started a period of turnover growth leading up to highly successful IPO in late 2007.

Needless to say this will be a very interesting year for the UK colocation market. To be continued…