MSP Today Expert Feature
July 14, 2015

Digital Realty Trust Makes Nearly $2 Billion Move to Buy Telx

It's been said that the data center market space has been in something of a consolidation pattern for a while now, and that assertion just got a little more credence recently from a new move from Digital Realty Trust Inc. The company recently made an arrangement with ABRY Partners and Berkshire Partners to pick up Telx in a deal reportedly valued at $1.89 billion. With Telx comes a lot of new possibility for Digital Realty Trust, and a major new step forward in the field.

Reports note that once the deal is closed, a development expected to occur later this year, Digital Realty will have effectively doubled its co-location footprint. Given that Telx was managing around 1.3 million square feet of data center as of March 31, and leased over half of its facilities from Digital Realty, the idea to pick up Telx had a clearly rational basis. Digital Realty primarily made its mark, reports note, on wholesale data center operations, renting space to companies like Facebook (News - Alert) and IBM that commonly bought in bulk. But with more companies starting to express an interest in co-location—which is said to be tough to start from nothing but is still highly profitable—Digital Realty had a clear opportunity to pull in new business.

With data center demand in general on the rise, co-location operators can provide a useful service renting data center capability by the rack, by the cage, or even by the room. With more companies eschewing buying hardware and moving to outsource data management and similar information technology (IT) tasks, that gives those getting into the co-location market room to offer that new product. There's been quite a bit of movement in this sector of late, with recent reports putting the U.K.'s Telecity Group merging with Interxion Holding NV, at least until Telecity rival Equinix (News - Alert) stepped in with another offer.

The world, increasingly, runs on bandwidth. This is a development that most of us see in our everyday lives as we settle in for an evening of Netflix or try to run a videoconference from our homes for work. Throw in the growth of things like the big data market or Web-based real time communications (WebRTC) and the demand for the systems necessary to move data around is clear. But by like token, many businesses don't want to buy all the servers and such necessary to handle all that data, so farming the job out elsewhere is often seen as the next best thing. That's where deals like this would really seem to make sense, and at least a part of why we're seeing so many such deals get made.

The move between Digital Realty and Telx will likely make Digital Realty a much stronger player in the field, and give more firms reason to sign on with Digital Realty, which may end up perceived as better able to provide desired services. But if nothing else, this deal serves as a means to illustrate why this entire market should be carefully watched; there's a lot of growth and movement in here, and that means potential opportunity on several fronts.

Edited by Dominick Sorrentino