It will be interesting to see just how the market reacts to this offer. Yesterday the stock started to lose value and overnight it dropped considerably before rallying on the news of this offer. The stock is still down 2% on yesterdays close at the time of writing although it does appear to have stabilised.
The press release states that the notes will rank equal to all existing indebtedness and will retain that status going forward. A significant portion of the money raised will be spent on paying off the acquisition of TelecityGroup and the debt that TelecityGroup brought with it. Interestingly, Equinix announced that should that deal fail to be completed by November 2016 it will be required to repay the senior notes in full.
Who will Equinix buy?
This is a difficult question to answer. It has already reached saturation point in Europe judging by the response of the European Commission to its TelecityGroup Acquisition. There is still significant room in the US for Equinix to acquire new data centres although it is more likely that it will now turn its attention to the Far East and China in particular.
Despite the slowdown in the Chinese economy caused by a reduction in manufacturing, the country is beginning the move into a services economy. That means there will be a lot of requirements for technology, cloud services and therefore data centres. Equinix is underserved in China with only Shanghai currently covered. This means there is a lot of room for expansion.
Unlike the problems of many non-Chinese companies entering the market with goods to sell, owning data centres should not present as many problems. That said, Equinix may still decide that a local partner is a better deal than an outright acquisition.
China is not the only place where there is significant activity at the moment. Australia is seeing its data centre market beginning to strengthen as cloud begins to gather pace. Equinix already has data centres in Melbourne and Sydney and may look to add additional facilities in the region in order to compete with the likes of Telstra and OVH who also indicated that it is keen on data centres in the region.
One area where Equinix could expand is India. It currently has no data centres in the country which has one of the biggest technology markets outside of Europe and the US. Chennai, Hyderabad, Bengaloru and Mumbai are hotbeds for the Indian IT industry and there is certainly plenty of room for Equinix to build facilities. With its Cloud Exchange product it would almost certainly find a ready market for its facilities.
The last option is South America. With just two data centres in Brazil which is one of the biggest economies in the region Equinix is underrepresented. There is also a lot of political will to build data centres across the whole continent as countries look to data sovereignty to prevent the large scale data gathering that the US and its allies have been accused of.
Microsoft recently completed a bond offering for unsecured notes to the value of $13 billion which were well received and one wonders whether following that success Equinix felt the market would accept another offering. It is almost exactly a year since Equinix last sought to raise cash with a $1.25 billion offering on November 17th 2014 and it is becoming an almost annual event as Equinix keeps up momentum for its growth.
This is a sensible move by Equinix and it comes at a time when the shares are only just off their highest ever level. Over the next few weeks as the offer is considered it will be interesting to see if the markets are not only keen to take it up but also if they think there is a risk to the share price.
In the areas where Equinix has little to no representation there are a lot of small players who are ripe for acquisition. It is more likely that Equinix will prefer a mid-sized player with several facilities where it can quickly deploy its Cloud Exchange and begin to see a return on the investment.