November 14, 2005 -- (WEB HOST INDUSTRY REVIEW) -- The colocation market in Europe underwent a major consolidation earlier this month with TeleCity (telecity.com) entering into an agreement to buy rival Redbus Interhouse (interhouse.net) in an all-stock transaction. It is the second major European Web hosting deal in recent months. In August, Cable & Wireless (cw.com) acquired application and managed hosting provider Energis in $1.08 billion deal, bringing four data center facilities totaling 213,000 square feet into the C&W fold.
The TeleCity and Redbus deal brings two very similarly constructed companies together, in terms of both capabilities and focus, and creates the market's dominant player. Perhaps most importantly, it eliminates one of TeleCity's key rivals and leaves IXEurope and Interxion as its two significant remaining foes.
"The newly merged TeleCity Group will be a clear leader in the marketplace, becoming the de facto number one in terms of turnover, number of customers and data center space under management," the company said in a release.
TeleCity expands its data center footprint considerably with the acquisition. TeleCity and Redbus currently operate nine and eight facilities in seven and five cities, respectively. The newly merged company would have 16 data centers in eight cities, with Milan, Italy being the one city where TeleCity does not yet have a presence. The acquisition of Redbus adds an additional data center in each of Amsterdam, Paris and Frankfurt, while three more would be added in London.
The acquisition also expands TeleCity's managed service capabilities and gives it more flexibility, says Matthew Gingell, marketing director for TeleCity. While they were competitors, TeleCity and Redbus were quick to point out their differences, but the reality, Gingell says, "is we both have a wide selection of different types of customer solutions." And some of the Redbus facilities were built to higher specifications, enabling it to deliver services that TeleCity could not with its existing capabilities.
TeleCity says one of the main reasons it made the deal was because of how the complementary capabilities would position it more effectively in the London, Paris, Frankfurt and Amsterdam markets - the most competitive in Europe. The move also had a preemptive element.
"The TeleCity Group Directors believe that Redbus would risk being disadvantaged vis a vis competitors who were successful in achieving consolidation, if Redbus were not to secure this opportunity," the company said in a statement.
Gingell says the market has been ripe for consolidation in the last few years and TeleCity had been waiting for the right transaction to come along. He also says further consolidation is not out of the question. "There are still a lot of competitors out there and a lot of extra space. I think if we can seriously increase the value within there are horizontal acquisitions to be made and possibly additional vertical managed services types of additions that would be very welcome."
Gingell says TeleCity will continue its overall strategy of trying to generate as much value, and revenue, out of each square foot of space - a reflection of a wider industry trend seeing colocation providers introduce more managed services with their facilities-based offerings.
"Putting it together, [the acquisition] gives us some additional benefits on the cost side, but it also gives us the ability to get more revenue ... and more new services," says Gingell. "Fundamentally it's still about what additional layer of managed services we can layer on top of the basic colocation offering."
The strengthened financial backing was another motivating factor behind the deal. The company believes this will ease concerns any existing and potential customers have about the stability of the operations and ensure uninterrupted service.
TeleCity says it will begin developing an integration plan for the two companies in the coming weeks. Trevor Wadcock, operations director of TeleCity, will oversee the process. Current Telecity CEO Rick Hudson and finance director Josh Joshi will be stepping down as a result of the transaction. The newly merged entity's management team will consist of Michael Tobin, currently chief executive officer of Redbus Interhouse, Carl Fry, currently finance director for Redbus Interhouse, Wadcock and Gingell.
