Bell buys Q9 amidst increasing data centre competition: analysts

BCE Inc. announced Monday it is buying out its fellow investors in Q9 Networks Inc., a data centre operator in which it currently holds a 35.4-per-cent stake, in a move that analysts said comes as investment and competition in the data centre space increases. Bell said in a press release it will acquire the stakes “in a transaction valued at approximately $675 million, including Q9 net debt but excluding Bell's existing ownership interest.” The release said the deal “supports Bell's ability to compete against domestic and international providers in the growing outsourced data services sector.” Bell and an investors group purchased the company for $1.1 billion in 2012. Canaccord Genuity analyst Aravinda Galappatthige said in a research note Monday that Q9’s debt is likely about $500 million, meaning Bell is “is only paying $175M for the remaining equity.” He added that “Q9 is a provider of outsourced data centre solutions such as hosting, co-location and cloud services. We believe the objective here is to strengthen BCE’s capabilities in this space in the face of growing competition from both Canadian and operators.” Greg MacDonald, a telecom analyst at Macquarie Capital Markets, agreed in an email that competition in the data centre space “appears to be heating up, a little at least.” He noted last year Microsoft Corp. announced plans for data centres in Toronto and Quebec City, while Amazon.com Inc. said earlier this year it will open a data centre in Montreal. RBC Capital Markets analyst Drew McReynolds said in a research note Monday that Bell's move to exercise its option to buy Q9 “was largely anticipated and is consistent with industry-wide investments currently underway in higher-growth data centres.” McReynolds was referring to investments including Cogeco Inc.’s purchase of Peer 1 in 2012 and Shaw Communications Inc.’s acquisitions of Enmax Envision Inc. in 2013 and ViaWest Inc. in 2014. Rogers Communications Inc. purchased Blackiron Data ULC in 2013, followed by acquisitions of Pivot Data Centres and Granite Networks later that year. Quebecor Inc.’s Videotron bought the 4Degrees data centre in Quebec City last year, and Fibrenoire this January, while Telus Corp. has opened its own data centres, including in Kamloops, B.C. in 2014. The Wire Report first reported in 2014 that a move into data centres was a natural evolution for telecoms, especially Canadian ones, given that Canada fulfills many requirements for data centres, including a cool climate and a low probability of political upheaval. McReynolds added in his note that that “the acquisition of Q9 Networks should provide a boost to BCE's wireline organic revenue growth in 2017,” though a modest one given that Bell’s business market revenue amounts to about $4.5 billion. The deal is expected to close by the end of the year, Bell said. — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Charelle Evelyn at cevelyn@thewirereport.ca

Bell buys Q9 amidst increasing data centre competition: analysts

News | August 8, 2016

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Bell buys Q9 amidst increasing data centre competition: analysts

News | August 8, 2016

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