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Digital Realty Trust to buy Telx in $1.88 billion deal

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In a sign that the data center market is consolidating, Digital Realty Trust is buying Telx from ABRY Partners and Berkshire Partners in a deal valued at $1.886 billion.

The acquisition would just about double Digital Realty’s (DLR) data center “footprint” and give its business customers access better access to Telx’s interconnection system which links cloud providers, internet service providers, and content companies into a massive network. In the data center and cloud world, where distance between different providers introduces delays or latency, proximity is key so facilities that bring together those entities are valuable. If all the telcos and providers are concentrated in a facility, everyone else wants to be there too.

As of the end of March, Telx on its own managed 1.3 million square feet of data center real estate spread across 20 facilities in the U.S., two of which are Telx-owned. Of the rest 11 were leased from Digital Realty, which until recently focused on the wholesale part of the business, meaning that it rented out huge spaces for use by big tech companies like IBM who then ran the data centers themselves.

Telx ownership gives DRT a bigger presence in co-location services, in which the provider owns and maintains the building infrastructure, power, network bandwidth and physical security but rents out chunks of space for customers’ server and storage hardware. Telx ownership will enable DRT to compete directly in this market with Equinix(EQIX), the world’s largest data center provider, which in March grew more with its $3.6 billion acquisition of London-Based Telecity Group.

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