Report: Telx Exploring Potential $2B Sale

Telx is exploring a potential sale that could value the colocation and interconnection provider at around $2 billion including debt, reported Reuters citing anonymous sources.

The company’s private equity owners ABRY Partners and Berkshire Partners have allegedly interviewed investment banks to appoint financial advisers that will help run an auction for the company. Telx was contacted but declined to comment.

ABRY and Berkshire acquired Telx in 2011. Both firms are big investors in the communications industry. The acquisition price was undisclosed, however the current rumored sale price likely means a healthy profit. Telx opted for acquisition rather than an Initial Public Offering initially in the works.

Telx has a data center footprint of 1.3 million square feet, but its core strength and selling point is its interconnection, offering exchanges in various markets. The company has focused on expanding cloud connectivity in recent years.

Its footprint and strength in interconnection make it an attractive acquisition.

"Telx is very interesting asset with a lot of interesting facilities in key locations," said Philbert Shih, managing director, Structure Research. "Because it’s footprint is just in U.S. it could be an interesting acquisition for a non-U.S. buyer looking to the U.S. market – more likely in Europe but potentially Asia."

The company owns 20 data centers across the U.S. including key facilities in New York City. The buildings – 32 Avenue of the Americas and 60 Hudson Street – are both key connectivity hubs not just for the U.S. but for the global Internet. Rich connectivity is the reason data center space on the island is in demand, and connectivity is Telx’s specialty. It recently added capacity both facilities.

The third New York location is the 111 8^th Avenue, a building acquired by Google in 2010 and taken off the market. Telx CEO Chris Downie recently commented that Telx’s presence was safe for several decades, but declined to say when the lease runs out.

The company also has a big presence in New Jersey, including the largest investment it has ever made on a data center. The NJR3 data center was the first facility it built from the ground up. Growth in New Jersey is the result of overflow from the New York market, particularly with financial services customers.

There have been several recent blockbuster deals, including the Interxion TeleCity merger over in Europe. The merged company creates the largest player in Europe, and arguably one potential Telx buyer. Telx's all-U.S. footprint would be extremely complimentary, though this is just speculation.

The colocation market is expected to reach $36 billion by 2017, according to 451 Research. Connectivity is playing a bigger role in colocation’s success, not just in terms of networks but in terms of cloud. A big colocation sell for enterprises is the ability to privately connect to cloud, and colocation facilities are acting as cloud hubs.