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Digital Realty Eyes Hyperscale Domination with $7.6b DuPont Fabros Merger

14 June 2017
Digital Realty and DFT Merger

Digital Realty Trust Inc. (NYSE: DLR) sent shock waves through the data center world on Friday when it announced the acquisition of DuPont Fabros Technology (NYSE: DFT).

The $7.6 billion accretive merger is expected to be finalized in the second half of 2017 and will be the United States’ 8th largest publicly traded REIT with a market capitalization of $25 billion. Digital Realty’s main competitor, Equinix, remains the third largest US REIT valued at $39 billion.

The mammoth deal will see the combined organization manage 26 million square feet of floor space across 157 data centers, 12 countries and 33 metro areas.

Under the deal, DuPont Fabros will contribute 12 facilities across three US markets including Chicago, Northern Virginia and Silicon Valley, boosting Digital Realty’s presence in these top-tier locations, while also delivering geographic and customer diversification for DuPont Fabros.

The synergies, economies of scale and operating efficiencies resulting from the merger are expected to realize up to $18m in annual cost savings. The decision is also consistent with Digital Realty’s strategy of delivering a complete suite of data center and colocation solutions, from single-cabinet deployments to hyper-scale product offerings. 

“This strategic and complementary transaction significantly enhances Digital Realty’s ability to support the growth of hyper-scale users in the top U.S. data center metro areas, while providing meaningful customer and geographic diversification for DuPont Fabros,” said A. William Stein, Digital Realty’s Chief Executive Officer.

Cloud revenues in North America are forecast to exceed $59 billion by 2020, up from an expected $39 billion this year. As the cloud leaders expand their footprints, the merger will mean that 26% of all cloud customers will be using Digital Realty’s services. With a client base encompassing over one-quarter of the industry, the new company is in a prime position to profit from the continued growth of the cloud.

The acquisition includes a number of expansions in-progress and in the pipeline. DuPont Fabros has six major developments underway in Ashburn, Chicago, Santa Clara and Toronto, as well as substantial land holdings reserved for future expansion.

DuPont Fabros shareholders will receive 0.545 Digital Realty shares per DuPont Fabros share, and Digital Realty shareholders will hold approximately 77% of the combined organization, with DuPont Fabros shareholders holding 23%. Both companies saw their stock values surge following the announcement. The company’s board will consist of the ten existing Digital Realty directors, plus two directors from DuPont Fabros.

Investment grade clients will represent over 50% of the organization’s revenue. Digital Realty’s largest client will be IBM, with a presence in 24 locations, followed by an undisclosed Fortune 50 software company with a presence in 15 locations, and then followed by Facebook, CenturyLink, Rackspace, Equinix and Oracle in order of occupancy size.

Whilst the deal is still is subject to customary closing conditions (including approval by the shareholders of both parties), the combined entity’s top 20 customers would be as follows (it’s believed that customers 2, 8, and 9 are Microsoft, Apple and Salesforce, respectively):

Digital Realty Top Customers

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