Is Nextdc Ltd next on the takeover list?

Nextdc Ltd (ASX: NXT) could be the next takeover target, according to media reports.

The data centre operator is rumoured to be a potential target for Equinix, according to speculation by the Australian Financial Review (AFR). Equinix has recent form according to the AFR, recently acquiring European data centre operator Telecity for US$3.8 billion. Nextdc would be a much smaller bite – with a market cap of A$834 million.

Nextdc runs 5 data centres in Brisbane, Canberra, Melbourne, Perth and Sydney, and is developing two more sites – one in Brisbane and another in Melbourne.

US data centre giant Equinix already has a number of data centres in Australia, and the AFR reports that the company has an investment banking team in Australia, doing preliminary due diligence on a large data centre deal. That puts Nextdc firmly in the spotlight.

Earlier this year, Deutsche Bank advised its clients to buy Nextdc thanks to the growth in cloud computing, outsourcing and internet traffic, and giving them 8 bonus reasons why the company is a takeover target.

The speculation comes after telecommunications infrastructure provider Vocus Communications Limited (ASX: VOC) announced it was buying Nextgen Networks for $807 million. Vocus also operates its own data centres, but these are more likely viewed as non-core assets, with the fibre networks and retail products it now owns seen as the core businesses.

Another potential target could be the much smaller Macquarie Telecom Group Ltd (ASX: MAQ). Macquarie Telecom is a competitor to Nextdc in the data centre and corporate hosting space, but is also a major provider of technology services to the Australian government. Interestingly, Vocus owns 14.5% of Macquarie, giving it a say in any takeover activity.

And while the company has just 3 data centres, Macquarie Telecom saw $15.6 million in earnings before interest, tax, depreciation and amortisation (EBITDA) for the six months to end of December 2015.

Nextdc has only just become profitable and had $11.4 million in EBITDA for the same period – but boasts a market cap more than three times that of Macquarie’s.

Foolish takeaway

Given the frenzy of consolidation in the telecommunications sector, it wouldn’t surprise me to see both Nextdc and Macquarie Telecom to be taken over at some stage.

How 1 Man Turned $10,000 Into Over $8,000,000

Discover how one man turned a modest $10,600 investment into an $8,016,867 fortune. Learn more about this man and how you can start down the path toward financial independence. Simply click here to learn more.

No credit card required either, so what are you waiting for?

Motley Fool writer/analyst Mike King owns shares in Vocus Communications. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.