Digital Realty Closes $1.9B Telx Acquisition

While all eyes are on the biggest tech acquisition in history – Dell’s $67 billion takeover of EMC – the data center services industry recently saw the close of one of the biggest M&A deals on its record, albeit a much smaller one than the expected merger between the two IT giants.

Digital Realty Trust, one of the world’s largest data center providers and the world’s largest provider of wholesale data center space, has completed its $1.89 billion acquisition of Telx, just about doubling the size of its retail colocation business.

The acquisition is symbolic of the changes the business of leasing data center capacity is going through. Digital was an industry pioneer that perfected the art and science of being a type of data center landlord whose involvement with the customer’s infrastructure stops at the power and cooling infrastructure level, and sometimes even lower “down the stack,” where the company would simply provide a building shell and access to utility power feeds, leaving the rest of the build-out to the tenant.

But data center tenants today want more than that out of their provider, and Digital is responding as it competes against smaller players, such as QTS Realty Trust and CyrusOne, and its more seasoned rivals, Equinix being the biggest of them all.

Telx gives Digital a substantial retail colocation and interconnection business – the types of services that have traditionally taken the back seat to the San Francisco-based real estate investment trust’s wholesale business.

Read more DCK analysis of Digital Realty's Telx acquisition here and here

Companies in the data center services space are diversifying their product portfolios by developing new capabilities internally, partnering, or making acquisitions. Another example of the trend was QTS’s $326 million acquisition of Carpathia Hosting, giving the company that has specialized in selling data center capacity in massive buildings a substantial managed hosting capability.

The deals show that big customers that take data center space in bulk increasingly need other services and that it’s difficult to make it today as a data center provider with a pure “bulk space play,” Bo Bond, managing director at the commercial real estate brokerage Jones Lang La Salle, said.

“The combination of Digital Realty's and Telx's portfolios of data centers and capabilities gives customers the platform they need to grow and compete in a data-driven world,” Digital CEO William Stein said in a statement.