Digital Realty Acquires DuPont Fabros: $7.6 Billion Data Center Deal

In its largest deal to date, Digital Realty Trust Inc. (DLR) is acquiring rival data center operator DuPont Fabros Technology Inc. (DFT) for about $7.6 billion.

The purchase of one its of major competitors will grow Digital Realty’s presence in high-demand U.S. metro areas and expand the company’s hyperscale product offerings, among other perks.

Digital Realty ranks among the world’s largest data center providers with 145 properties in 33 metropolitan areas, while DuPont Fabros has 12 data centers that serve large cloud markets.

San Francisco-based Digital Realty boasts big-name customers like IBM, Facebook, CenturyLink, LinkedIn and AT&T, while D.C.-based DFT has a stronghold on top data center markets like Northern Virginia, Chicago and Silicon Valley, as well as its own share of major clients.

In a statement, DuPont Fabros President and CEO Christopher P. Eldredge said his company will benefit from belonging to an even greater data center network with a global footprint, a well-diversified customer base, an investment-grade balance sheet and lower capital costs.

"We are excited to deliver this compelling transaction to our shareholders and execute upon two of the strategic objectives embodied in our corporate vision – diversifying our customer base and expanding our geographic presence," he said.

Digital Realty’s Growth

Digital Realty has made a series of significant data center acquisitions in recent years that have helped it grow and outscale competitors.

The DuPont Fabros deal is expected to close in the second half of this year, pending shareholder approval and other closing conditions.

The massive acquisition includes $1.6 billion of assumed debt, and Digital Realty has secured a bridge loan from BofA Merrill Lynch and Citigroup to help finance the deal, if needed.

The deal is expected to save the combined companies up to $18 million in annual overhead due to overlapping business operations. It's unclear if any jobs will be cut.

Key Benefits

In addition to growing its presence in high-demand metros and expanding hyperscale offerings, Digital Realty said the deal will improve its ability to meet the needs of cloud customers and help enterprises shift to hybrid cloud architecture.

Digital Realty will benefit from DuPont Fabros’ roster of "blue-chip" customers -- on a combined basis, investment-grade or equivalent customers will represent more than half of total revenue -- as well as expansion projects the company currently has in the pipeline, the companies claim.

DFT has six data center projects under construction in four cities -- Ashburn, Chicago, Santa Clara and Toronto -- for a total investment of about $750 million and a 26 percent increase in standalone critical load capacity.

For DuPont Fabros, the addition of Digital Realty’s colocation and interconnection services means the ability to address a broader set of customer data center requirements.

“The two companies' operating models are highly complementary, and the combined organization is expected to provide the most comprehensive product offering in the data center sector,” the Digital Realty statement said. “Given the enhanced size and scale, the combined company is also expected to have the most efficient cost structure and the highest EBITDA margin of any U.S.-based publicly-traded data center REIT.”