Equinix to Acquire Brazilian Firm - Analyst Blog

The leading global data center service provider Equinix Inc. (EQIX) and private equity firm Riverwood Capital recently announced that they have reached a definitive agreement to acquire a roughly 90% stake in ALOG Data Centers of Brazil S.A. The transaction will cost Equinix approximately $127.0 million in cash. Under the terms of the deal, Equinix will retain a controlling interest in ALOG with Riverwood getting a minority stake.

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

The Brazilian data center space will allow Equinix to tap 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 yet unexplored Latin American market. Post acquisition, Equinix will operate 95 data centers across 37 global markets and will compete against Verizon Communications Inc. (VZ). Lately, 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 strong fourth quarter results with its top and bottom line exceeding the Zacks Consensus Estimates. The quarter's strength was propelled by strong product demand and growth in international markets, which were quite encouraging.

We believe Equinix is well positioned to capitalize on growing market demand, as many service providers and enterprise network operators are already moving toward the evaluation and deployment of next-generation Ethernet services. Despite all the positives, we remain a bit apprehensive regarding stiff competition from leading network providers such as AT&T Inc. (T) and Verizon. European exposure and industry consolidation are also causes for concern.

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