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Saturday, June 18, 2016

Digital realty and users come out winners in Equinix data center deal

Digital Realty data center deal
Data center management requires high capital investment

By Ask Katrina

Facing deadline pressure from government regulators, Equinix sold eight European data centers to Digital Realty Trust for $875 million. Since Digital Realty is a possible competitor, it appears this deal was not in the best interest of Equinix. Both sides seem to be downplaying any possible rivalry; however, only time will tell just how comfortable the two data center powerhouses will remain in the competitive European business environment.

The deal is very good for digital realty

So, just how was Digital Realty able to muscle its way into getting such a beneficial arrangement? Well, to put it succinctly, Digital had the cash in hand. It was time for potential buyers to put up the money or move on.

Running a data center requires a heavy capital investment, according to Digital CEO William Stein. His company maintains a strong balance sheet allowing them to make business moves when the opportunity presents itself. Others cannot operate similarly.

Things not so good for Equinix

Equinix would probably not have sold to Digital Realty if not for the pressure put on it by European regulators. The company had acquired Telecity and had been told to divest in certain data centers. The time had come for them to let go of the centers or be in noncompliance with the law.
Consequently, Equinix sold the eight locations to Digital Realty, who could become a strong competitor in the area.

Equinix executives admitted just as much at a JPM conference the day after the deal became public. According to them, the company had little idea that all eight centers would be sold to one entity. Yet, that is just what occurred.

Digital Realty will make out like bandits, so to speak. They can move quickly in expanding their Telx platform across Europe. In general, companies spend years building the infrastructure to create interconnected customer arrangements. Instead, in this instance, Digital Realty has virtual immediate access to a built-in structure. Few companies could ask for more.

Downplaying the potential rivalry

Digital Realty representatives have tried to downplay talk of competition. According to them, Equinix is their client and partner. The two companies will continue to work together in the near future, they claim.

Meanwhile, Equinix leaders take a less sanguine approach. Despite claims to being comfortable with Digital Realty playing in their backyard, they also described the arrangement in terms of “coopetition.” This word implies both a cooperative and competitive relationship, which is closer to reality than perhaps the comments offered by Digital Realty.

The benefit for data center users

Overall, the deal is a boon for European data center clients. Obviously, it was time for Equinix to move on. Regulators could have forced a less beneficial deal, which is what Equinix wanted to avoid. It opted for the best case scenario, in the alternative, which was the deal with Digital Realty.

Data center clients can rest easy knowing that the hi-tech industry in Europe remains strong, if not stronger, as a result of this move by two leading companies.

About the author: In addition to her work with rack solutions, Katrina has a video series featured on Youtube called ”Ask Katrina" that aids in answering your IT needs

Image: Author owned and licensed