Switch and Data continue US colo consolidation

 

US carrier neutral colo provider Switch and Data announced the acquisition of Dallas based provider LayerOne in January, their latest move in a string of deals stretching back to their March 2003 acquisition of PAIX from MFN.  This most recent purchase gives them a third facility in the Dallas market and now 35 facilities across the US in 23 individual markets. 

 

The Switch and Data deal also continues the consolidation trend we have seen in the US since the dot.com crash in 2000, as outlined in the table below.  It is interesting to note by contrast the limited activity we have seen in Europe over the same timeframe, with at least 6 providers offering some form of pan-European coverage, often in the same locations.  Hats off therefore to IXEurope on their acquisition of Telehouse Europe’s Geneva facility in April 2004 and their previous deals in 2000 in Zurich and Frankfurt. 

 

The irony with the situation in Europe is that all providers had a very positive year in 2004, not just one or two groups, so everyone has grown stronger together, reducing the opportunities for the strong to purchase the weak and so making it harder for any consolidation to take place.  And of course for the shareholders in these companies, whilst the improvements in trading over last year will be welcome, the companies valuations are still at fractions of their original worth (eg Telecity floated at £7.50, current share price: 18 pence) so any deal that crystallises these values could still cause some difficulties.  However, we can’t ignore the fact that the private equity and venture capital backers of most of the groups will be seeking an exit at some stage and with the 6 key pan-European operators offering 39 facilities across the top 6 markets, the potential for cost-cutting is only too plain to see.

 

Our prediction for the European market in 2005 is that the larger pan-European providers will look to pick-off some of the smaller, independent operators or even acquire assets from carriers, but that large takeovers or mergers still appear a less likely possibility, despite the apparent need for consolidation.

 

 

Summary of significant US colocation acquisitions and deals

 

Tim Anker

The Colocation Exchange

January 2005