Big telecom players are once again eyeing data-center acquisitions. Word on the street — or at least on Bloomberg — is that CenturyLink (CTL) is looking to acquire Rackspace holdings (RAX). The hosting provider rose 5% on the news that it could be acquired, before backing off a bit today.
The rumored deal makes sense because the larger telecoms have been on an M&A binge to beef up their hosting and cloud services portfolio. CenturyLink and Verizon have been the most active in this area, making a flurry of deals since 2011 when CenturyLink merged with Qwest.
With a $5.6B market cap, Rackspace could be a digestible deal for CenturyLink, which has $18B in revenue and a $24B market cap as of today. It makes sense that the larger service providers, which were relatively slow to the uptake on cloud and hosting services, want to get in this business, which is growing fast. The telecoms also have the advantage of already having fiber infrastructure that can be used to connect the data centers and link it to larger enterprise customers.
In fact, a look at the history of these deals indicates that Centurylink and Verizon are in a race to build out the largest hosting and data-center portfolio. CenturyLink has bought Savvis, Tier3, and Platform as a Service (PAAS) provider AppFog, while Verizon has snapped up Terremark and EdgeCast. See the history below:
A History of Data Center Deals
April, 2011: CenturyLink Merges with Qwest
April, 2011: Verizon Completes Terremark acquisition for $1.5B
April, 2011: CenturyLink Announces Savvis Acquisition for $2.5B
June, 2013: CenturyLink Announces It’s Buying AppFog
November, 2013: CenturyLink Announces It’s Buying Tier3
December, 2013, Verizon Announces Plan to Acquire Edgecast
This is an interesting timeline which makes you wonder: Where is AT&T? AT&T has been selling its data centers recently, indicating that they seem to be going in the other direciton.