Equinix Inc. (EQIX) and Switch & Data Facilities Co. (SDXC) can now move forward with their merger plan, as the shareholders of Switch & Data has approved the merger for a consideration of $689.0 million.

More than 85% of Switch & Data’s outstanding common stock holders participated in the vote, among which in excess of 99% were in favor of the merger. We believe this is positive news for Equinix, as this acquisition is expected to further strengthen the company’s leadership position in the global data center services market by extending its presence to 16 new markets across North America.

During October 2009, Equinix and Switch & Data announced their merger plans. After the completion of the acquisition, Equinix will gain access to Switch & Data Facilities’ 34 data centers in 22 markets in the U.S. and Canada. One million gross square feet of data center capacity, will be added to Equinix’s existing data center area, bringing the total global footprint to 79 data centers in 34 markets and more than six million square feet across North America, Europe and Asia-Pacific.

Acquisitions have always been a growth strategy for Equinix. In 2003, the company started expanding its data center aggressively through the acquisition route. This was followed by the Virtu Secure Webservices B.V. acquisition in 2008. Virtu is a provider of network-neutral data center services in the Netherlands, so this acquisition was intended to expand the company’s operations in the European market.

Equinix is continuously increasing its client base and acquiring companies that could enhance its revenue potential and expand its geographic reach. It is also expanding its current facilities and at the same time exercising fiscal discipline.

The company registered decent growth in both revenue and net profit during the fourth quarter of 2009, with EPS of $0.44 exceeding the Zacks Consensus Estimate by 10 cents. This apart, the solid year-over-year growth of 27.6% in recurring revenue is also a good sign.

For the upcoming quarter, the Zacks Consensus EPS estimate for EQIX is $0.43, just 1 cent below the Most Accurate Estimate, indicating a potential small positive earnings surprise ahead. However, four analysts have made upward revisions in the last seven days, while three have made downward revisions. The net effect has been a one cent increase in the Zacks Consensus over the past week.

Equinix has had a positive earnings surprise of 42.35% in the last four quarters, so a surprise in the next quarter is to be expected. Further, the trend indicates a more substantial surprise than is currently indicated.

However, since management appears to have given less conservative revenue guidance and has even upped its capital expenditure plans, the upcoming quarter could actually bring a much smaller surprise, reversing this trend. We therefore have a Neutral recommendation on the shares.

Read the full analyst report on “EQIX”
Read the full analyst report on “SDXC”
Zacks Investment Research