October 22, 2009
Equinix, Inc. (EQIX)
Goldman Sachs Global Investment Research
1
October 22, 2009
COMPANY UPDATE
Equinix, Inc. (EQIX)
Neutral
Deal has strategic merit but limited synergy details; reiterate Neutral
What's changed
EQIX announced the acquisition of data center and Internet exchange
service provider SDXC for $689m in a cash/stock (20%/80%) transaction.
Based on SDXC’s 2009 EBITDA expectations, this equates to 11.2X 2009
EV/EBITDA. According to management, the deal is expected to
complement EQIX’s North American data center footprint given a similar
business model (network neutral colocation) and SDXC’s data center
assets in markets outside of EQIX’s current footprint. EQIX expects 1Q10
deal close. EQIX also reported 3Q09 earnings, with revenues of $227.6mn,
2.0% below GS/1.7% above consensus and EBITDA (ex-ESOs) of $106mn,
1.5%/8.5% above GS/consensus. Due to the lower than expected 2Q09
cabinet adds partially offset by better cost controls, our 2009
revenues/EBITDA (ex-ESOs) are now $879.1mn/$406.0mn (-1.5%/-0.2%).
Our 2010-2011 EBITDA are now $500.2/$623.5mn (-0.6%/-1.6%).
Implications
In our view, the acquisition helps EQIX enter new markets but
there are few details around expected synergies. With the
acquisition, Equinix is expanding into urban markets (Atlanta, Denver,
Miami, Seattle and Toronto), where it is currently underexposed. While
there may be potential headcount and other opex synergies, there
are currently minimal details. We expect this deal to have limited
impact on SVVS and RAX given significantly different business models
(colocation versus managed hosting).
Valuation
We remain Neutral on the stock as we see limited upside to our 12-month
price target of $100 (unchanged as lower revenues are offset by lower
expected capex). Our price target is the average of our DCF (3.5%
perpetuity growth, 9.4% WACC) and 10X 2011E EV/EBITDA (inc. ESO).
Key risks
Downside risk: Deal-related stock-issuance; upside risk: Macro rebound.
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