Nextdc Ltd (ASX: NXT) could be the next takeover target, according to media reports.
The data centre operator is rumoured to be a potential target for Equinix, according to speculation by the Australian Financial Review (AFR). Equinix has recent form according to the AFR, recently acquiring European data centre operator Telecity for US$3.8 billion. Nextdc would be a much smaller bite – with a market cap of A$834 million.
Nextdc runs 5 data centres in Brisbane, Canberra, Melbourne, Perth and Sydney, and is developing two more sites – one in Brisbane and another in Melbourne.
US data centre giant Equinix already has a number of data centres in Australia, and the AFR reports that the company has an investment banking team in Australia, doing preliminary due diligence on a large data centre deal. That puts Nextdc firmly in the spotlight.
Earlier this year, Deutsche Bank advised its clients to buy Nextdc thanks to the growth in cloud computing, outsourcing and internet traffic, and giving them 8 bonus reasons why the company is a takeover target.
The speculation comes after telecommunications infrastructure provider Vocus Communications Limited (ASX: VOC) announced it was buying Nextgen Networks for $807 million. Vocus also operates its own data centres, but these are more likely viewed as non-core assets, with the fibre networks and retail products it now owns seen as the core businesses.
Another potential target could be the much smaller Macquarie Telecom Group Ltd (ASX: MAQ). Macquarie Telecom is a competitor to Nextdc in the data centre and corporate hosting space, but is also a major provider of technology services to the Australian government. Interestingly, Vocus owns 14.5% of Macquarie, giving it a say in any takeover activity.
And while the company has just 3 data centres, Macquarie Telecom saw $15.6 million in earnings before interest, tax, depreciation and amortisation (EBITDA) for the six months to end of December 2015.
Nextdc has only just become profitable and had $11.4 million in EBITDA for the same period – but boasts a market cap more than three times that of Macquarie's.
Foolish takeaway
Given the frenzy of consolidation in the telecommunications sector, it wouldn't surprise me to see both Nextdc and Macquarie Telecom to be taken over at some stage.
