What Will Equinix’s $40M Verizon Data Center Integration Entail?

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It certainly isn’t being treated as a fixer-upper.

When announcing his company’s $3.6 billion acquisition of nearly 30 Verizon data centers earlier this month, Equinix CEO Steve Smith told analysts on a conference call that the purchase price was about 13 times the annual earnings he expected the portfolio to generate once the deal was closed. Then he added: “This adjusted EBITDA excludes approximately $40 million in integration costs anticipated over that timeframe.”

Integrating another company’s facilities into one’s portfolio — especially at this scale — may not be as simple as changing the sign on the door and peeling the red pinstripes off the cabinets. What would that $40 million be used for, and will it be enough?

“If you look at any of the acquisitions, there’s a fairly detailed and involved integration [plan] that we start creating between the signing process, then through close, and executing immediately after close,” Jon Lin, Equinix VP for corporate development and strategy, told Data Center Knowledge in an interview. That integration process includes branding of the sites, product “harmonization” between the acquired sites and the rest of the portfolio, assessing the infrastructure, and identifying any necessary investment to bring it up to Equinix standards. “That would all be considered as part of the timeline.”

The full integration period could consume 16 to 18 months, he estimated, during which the acquired sites’ 250 or so employees — who will be joining Equinix — would need to maintain Verizon’s by then former customers.

For details on the deal itself: Why Equinix is Buying Verizon Data Centers for $3.6B

On the conference call, an analyst wondered how Equinix would be able to pull off an integration of such scope, which includes an expansion of its presence in Brazil and entry into a whole new country, Colombia, especially given that it’s still integrating European assets of recently acquired Telecityand Japanese assets of recently acquired of Bit-isle?

Smith said the Verizon deal will be headed up by the company’s president for the Americas, Karl Strohmeyer, who is not connected with the other two operating regions and who is free to give his full attention to the integration in North and South America.

“We will move ahead very quickly on this,” Smith said. “Karl has a well-detailed plan for this thing and will move very quickly in parallel with the other two acquisitions. This is very digestible for us.”

Equinix announced the Telecity deal in May 2015 and Bit-isle the following September. Both were whole-company acquisitions, while the Verizon deal is more of a “carve-out,” as Equinix executives put it, which, according to Strohmeyer, is an important distinction.

“Typically, we buy a complete company with all the systems, services, support, infrastructure,” he said on the call. In the Verizon deal, “we are purchasing the assets themselves — and obviously the customers in the assets, and the revenue streams associated with those customers, as well as the data center operators themselves. It’s effectively an asset plug-in to the current operating model within the Americas today.”

In response to another analyst’s question as to how the company would “Equin-ize” the assets, Strohmeyer reiterated that his team had performed the necessary due diligence to ensure that the former Terremark assets were as high-quality as Verizon had been touting them to be and found “nothing of concern.”

It’s worth noting that the other two big integrations are still ongoing. Has it simply become a fact of doing business in this industry that a data center provider of Equinix’s scale must make a large acquisition every year or so just to remain competitive and thus remain in perpetual state of asset integration?

“I wouldn’t say so,” said Lin. “I think we’re pretty measured about looking at opportunities in the market for inorganic growth. But certainly on an organic basis, we’re very comfortable and confident with the plan we have in place. We’re obviously evaluating opportunities as they come up, and if we think there’s the opportunity to create value — which we certainly see in this case, as we have with the rest of our transactions — then we evaluate it and look to do a transaction.”

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