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Equinix (EQIX) Fortifies Mexico Portfolio With $175M Buyout

Zacks Equity Research

Equinix, Inc. EQIX recently entered into an all-cash transaction agreement with Mexican telecom firm — Axtel S.A.B. de C.V. — to acquire three data centers that cater the Mexico City and Monterrey metro areas of Mexico, for US$175 million.

The deal, likely to close in first-quarter 2020, is subject to customary closing norms, including regulatory approvals.

Despite this positive development, shares of the company have declined around 1.1% since the buyout was announced. This depreciation is largely due to the prevailing broader market concerns.  

All three facilities are carrier-neutral data centers. The two data centers serving the Mexico City metro region are strategically situated in Querétaro, while the third one is located in Monterrey area.

Specifically, the first facility spans 110,000 square feet of gross space and offers 37,000 square feet of colocation space. It is also the first Latin-American data center with an energy cogeneration system. Moreover, the second facility is an 80,000-gross-square-foot data center, offering 6,000 square feet of colocation space. The facility has the ability to expand and offer up to 60,000 square feet of colocation space. Both facilities offer multiple diverse fiber entry points and include five network service providers that are presently operating in each data center.

The third property in the Monterrey area offers 25,000 square feet of gross data-center space and 12,500 square feet of colocation space featuring 10 network service providers. This facility is a well- connected data center, offering a key interconnection gateway between the United States and Mexico.

The addition of these facilities will expand Equinix’s global portfolio, further fortifying its presence in Latin America’s second-largest economy. In fact, it will increase colocation space at Equinix’s International Business Exchange (IBX) data-center portfolio by 115,000 square feet and strengthen interconnection between North, Central and South America.

In addition, the facilities generated nearly $21 million of revenues in 2018 and the EBITDA margin profile is anticipated to be accretive to the Equinix business.

Furthermore, over the past three months, shares of this Zacks Rank #3 (Hold) company have rallied 8%, outperforming the real estate market’s growth of 1.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, data-center REITs have been witnessing a boom, with growing popularity of cloud computing, Internet of Things and big data, the use of third-party IT infrastructure by several companies and the ongoing migration of IT infrastructure to the digital edge. Additionally, the estimated growth rates for the artificial intelligence, autonomous vehicle and virtual/augmented reality markets will remain robust over the next five to eight years. This will significantly propel growth of data-center REITs, such as Equinix, Digital Realty Trust DLR, CyrusOne Inc. CONE, CoreSite Realty Corp. COR and others.

Amid these, accretive acquisitions and joint-venture efforts are expected to boost Equinix’s top-line growth. 

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