American Tower to Acquire CoreSite for $10.1 Billion

American Tower Corporation will acquire data center developer CoreSite for $10.1 billion, the companies announced this morning. The tower operator will pay $170 per share for CoreSite, a slight premium to Friday’s closing price of $166, and will assume CoreSite’s debt.

The deal represents a bold move into the data center business for American Tower, which is the world’s largest owner of wireless infrastructure with more than 170,000 sites and $7 billion in annual revenue. It has been actively exploring opportunities in edge computing that would allow it to monetize edge capacity at its thousands of tower sites. But American Tower has discovered the current gateway to the edge is the core of the network, where CoreSite is an experienced player.

CoreSite operates 25 data centers in eight U.S . markets, offering 21 cloud on-ramps and over 32,000 interconnections. Most prominently, CoreSite is the primary interconnection provider at the One Wilshire building in Los Angeles, a key hub for data traffic from Asia and a data storage and interconnection center for Los Angeles’  media and entertainment industry. CoreSite also operates strategic network hubs in Silicon Valley, Chicago, New York and Northern Virginia.

A Big Bet on Digital Convergence

American Tower said it expected the deal to be “transformative” as it seeks to capitalize on the growing convergence of digital infrastructure.  It owns the Colo Atl colocation site in Atlanta, and recently acquired a number of facilities operated by DataSite. It turns put those deals were a warmup for a much bigger push into data center business.

“We are in the early stages of a cloud-based, connected and globally distributed digital transformation that will evolve over the next decade and beyond,” said Tom Bartlett, American Tower’s Chief Executive Officer. “We expect the combination of our leading global distributed real estate portfolio and CoreSite’s high quality, interconnection-focused data center business to help position American Tower to lead in the 5G world. As the convergence of wireless and wireline networks accelerates and classes of communications infrastructure further align, we anticipate the emergence of attractive value creation opportunities within the digital infrastructure ecosystem.”

The growth of edge computing is highlighting the growing overlap between the data center and wireless worlds, a trend we first noted in our 2018 forecast (8 Trends That Will Shape the Data Center Industry in 2018). In addition to the three tower REITs, companies like EdgeConneX and Colony Capital have wireless experience and have added data centers as a core element of their business.

Denver-based CoreSite is one of the most experienced publicly-held data center REITs (real estate investment trusts). The company builds multi-tenant IT ecosystems in major markets, creating a campus environment with multiple facilities operating as one.CoreSite has always been among the most disciplined of the public data center REITs, seeking to closely match its capital spending with market demand.

CoreSite specializes in projects in major urban centers, where construction timelines are complicated and deploying new space can require patience. As a result, CoreSite has been managing simultaneous data center construction projects in Chicago, Los Angeles, Silicon Valley, Northern Virginia, and Northern New Jersey.

Looking Beyond the U.S.

The deal will likely expand CoreSite’s geographic horizon, as the company is one of the few remaining data center REITs that has an entirely U.S. footprint.  American Tower said it will be “evaluating the potential for international expansion in the data center space.”

“We are excited to partner with American Tower to expand its communications infrastructure ecosystem and accelerate its edge computing strategy through the addition of CoreSite’s differentiated portfolio of U.S. metro data center campuses,” said CoreSite CEO Paul Szurek. “The combined company will be ideally positioned to address the growing need for convergence between mobile network providers, cloud service providers, and other digital platforms as 5G deployments emerge and evolve.

“In addition, we expect the enhanced scale and further geographic reach to provide a platform for the combined company to accelerate its growth trajectory and expand into additional U.S. metro areas, as well as internationally, leveraging American Tower’s extensive presence across the globe,” Szurek added. “CoreSite’s outstanding team, interconnection platform and data center campus portfolio are a highly complementary fit with American Tower’s existing communications sites, and we believe this partnership delivers significant value to CoreSite’s stockholders and will create an exciting new chapter for our customers, employees and partners.”

The also deal puts a spotlight on the potential value of carrier hotels like One Wilshire and the Market Post Tower, a data hub in San Jose operated by CoreSite, buildings in the central business district of major cities that serve as hubs for network connectivity, attracting dozens of providers. Carrier hotels became the early cornerstones of the Internet economy, and some of the most successful properties in the colocation industry. As we noted in 2015, surging interest in interconnection has made carrier hotels sexy again.