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Digital Realty and Interxion gun for market leader Equinix through colocation mega-merger

The colocation market is continuing to consolidate, with Digital Realty confirming plans to acquire and merge with Europe's second biggest colocation provider, Interxion

Colocation giants Digital Realty and Interxion are embarking on a mega-merger that is on course to become the biggest acquisition in datacentre history, once the $8.4bn deal completes.

The offer, which is still subject to approval by the shareholders of both companies, will enable Digital Realty to expand its presence within the European market, where it already operates sites of its own in London and Dublin, by adding Interxion’s 53 carrier neutral colocation facilities to its portfolio.

It will also mark a significant step in Digital Realty’s ongoing efforts to reposition itself, as it moves to expand beyond its roots as a wholesale colocation provider to focus on the delivery of interconnection-focused offerings and services too.

Given how expansive Digital Realty’s presence is outside of Europe, the acquisition of Interxion’s assets makes a lot of sense, said its CEO William Stein, who will continue to lead the company once the acquisition closes.

“This strategic and complementary transaction builds upon Digital Realty’s established foundation of serving market demand for colocation, scale and hyperscale requirements in the Americas, Europe Middle East and Africa and Asia Pacific and leverages Interxion’s European colocation and interconnection expertise, enhancing the combined company’s capabilities to enable customers to solve for the full spectrum of datacentre requirements across a global platform,”  he said.

Combining the firm’s assets will also pave the way, he continued, for the pair to create a “global platform” to fulfil the colocation requirements of multinational customers, in both the enterprise and hyperscale space.

The latter group’s appetite for colocation capacity is regularly cited as driving force behind the record levels of take-up of datacentre capacity within Europe over the last few years, as internet service providers and cloud firms seek to build out their presence in the continent.

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This trend is being driven in large part by recent changes to the data protection landscape across Europe, which have seen users prioritise the use of locally-hosted cloud and internet services, while colocation effectively offers them a fast-track means of meeting that demand.

According to Digital Realty, combining their datacentre assets means the firms will be in a position to provide low-latency access to their customers’ services to approximately 70% gross domestic product in Europe.

And this could be set to increase further, as Interxion already has a number of datacentre developments still under construction that are set for completion within the next 24 months, and will increase its critical load capacity by 40%.

Once the merger completes, Interxion CEO David Ruberg will retain his title while overseeing the operations of the two firm’s combined Europe, Middle East and Africa (EMEA) business, which will continue trading as “Interxion – a Digital Realty company”.

Benefits for stakeholders

In a statement, Ruberg said the merger should generate plenty of benefits for the firm’s stakeholders, on account of how much broader its geographical reach will become. “They [stakeholders] will be able to participate in the value created by extending our approach across Digital Realty's global footprint, complementary customer base and significant presence in the Americas, EMEA and Asia Pacific,” he said.

“We look forward to working closely with Bill Stein and the entire Digital Realty team to consummate the transaction and combine the best of our companies to build the world's preeminent datacentre provider,” said Ruberg.

Speaking to Computer Weekly, John Dinsdale, chief analyst at Synergy Research Group, said the deal should help Digital Realty close in a little more on its rival Equinix, who remains the world’s largest retail-focused colocation provider.

“As the market consolidates there are fewer large independent colocation players that remain in play. Interxion was one of them,” he said. “This certainly gives Digital Realty added scale, footprint and capabilities.”

“When targeting new business with multinational companies and hyperscale operators, Interxion will help Digital to check a few more boxes,” said Dinsdale. “In the total colocation market (retail plus wholesale) this helps Digital Realty close the gap quite a bit with Equinix.”

From a European market perspective, though, the company still has a great deal of catching up to do, even with the prospect of adding Interxion’s facilities to its portfolio on the horizon.

“In Europe specifically, Equinix is clear number one in retail colocation with Interxion as the number two and Digital Realty is – again – a top 10 player,” he said. “However, the combination of Digital and Interxion will still leave the combined entity only about half the size of Equinix in European retail colocation.”

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