June 25, 2003 -- The drive to survive has produced some creative dealmaking in the data center industry. For Equinix Inc., it meant pulling off a complex restructuring that involved five separate transactions, including two acquisitions.
That creativity has been rewarded. Less than six months after the creation of the "New Equinix," the Foster City, Calif. company has transformed its balance sheet, expanded into the Asian market, and seen its stock price soar. Shares of Equinix closed Wednesday at $10.40, up more than 200 percent since May 1 (see related story).
But it wasn't easy or pain-free. The deal substantially diluted the company's stock, and followed a sustained effort to cut Equinix' costs and debt.
"We saw storm clouds on the horizon very soon after our IPO, and made very tough decisions that allowed us to survive," said Keith Taylor, Equinix’s vice president for finance and chief accounting officer. "It required a tremendous amount of prudence on finances and costs. We made the tough decisions because we had to."
Last fall, the need to further restructure its debt led Equinix into talks with Pihana Pacific and ST Telemedia, companies which shared two important characteristics.
"What was interesting to us was their pan-Asian presence and substantial cash on their balance sheet," said Taylor "That allowed us to deleverage (Equinix). We put the company on stable footing.
"The US business had just turned EBITDA positive," he added. "We've basically right-sized the debt, and our buildout plan is complete."
The Dec. 31 completion of the restructuring was followed on April 30 by an investment of an additional $10 million from Crosslink Capital, and the announcement of a series of new clients in its Asian operation, including Fujitsu and Telekom Malaysia.
Taylor says the addition of the Asian data centers hasn't shifted the company's focus offshore.
"We are a US business," he said. "Eighty five percent of our business will continue to be based in the US. The business here is much more mature. That said, we see a great opportunity to expand in the Asian market."
Equinix has nine US data centers spanning 855,000 square feet. Seven of those centers are cash-flow positive, with a company-wide "fill rate" of about 31 percent of the usable data center space, according to Taylor. The company has 275 workers.
Equinix' customer list includes IBM, Google, Sony Online, General Electric, Electronic Arts, Yahoo!, and Microsoft.
"When a lot of people look at Equinix, they don't understand our business model," said Taylor. "Our business is really colocation. We're not moving up the chain to offer network services or managed services. We provide you an exchange environment in a high-quality colocation facility. The cost structure of those two other business is substantial."
While providers can take steps to reduce their costs, the marketplace always has a say on pricing.
"We've seen prices drop in the last 18 to 24 months," said Taylor. "Prices were dropping because there was oversupply. We believe there's some irrational pricing in the market. Equinix chooses not to participate at that level, because it becomes a non-viable business."
Equinix provides core Internet exchange services that allow Internet infrastructure companies, enterprises and content providers to grow, manage and control their networks.