American Tower is ramping up its edge ambitions with plans to buy CoreSite for $10.1 billion.
Boards of directors of both companies have approved the agreement, in which American Tower will pay $170 per share in cash and assume or repay CoreSite’s existing debt. The deal is expected to close by the end of 2021.
CoreSite’s portfolio consists of 25 data centers, 21 cloud on-ramps and over 32,000 interconnections in eight major U.S. markets. That includes eight data centers in Silicon Valley, four in Los Angeles, two in Denver, two in Chicago, two in New York, one in Boston, five in the Northern Virginia and DC area, and one in Miami.
It builds significantly on American Tower’s current holdings of three metro data centers and six edge data centers – the latest added when it acquired facilities from DataSite in Atlanta and Orlando last month.
“We are very excited about this transaction and believe that the combination of American Tower and CoreSite will create a global leader of the neutral-host multi-tenant digital infrastructure that will be poised to drive significant value for our shareholders and expanded customer base, particularly in a hyper-connected 5G world,” said American Tower CEO Tom Bartlett on a Monday investor call.
The new unit will be set up as a separate entity within the U.S. business, according to Bartlett, and led by Steven Vondran, who is head of American Tower’s U.S. tower division as EVP and president.
American Tower has been talking up the edge for a while and officially launched its Tower Edge Center Initiative in 2020. Bartlett reiterated that the company has identified the evolution of the multi-access edge on a global basis as one of the most meaningful catalysts of future value creation across communications infrastructure, which the CoreSite acquisition helps capitalize on.
Bartlett outlined some of the reasons CoreSite is attractive for American Tower’s efforts:
- Differentiated nature of the assets, including high-density of latency- interconnections
- Strong high-quality customer base, with more than 1,370 customers including global enterprises, mobile network operators, and cloud service providers
- Meaningful development pipeline
- Well located facilities
The deal puts American Tower in a leading position across multiple classes of communications real estate as 5G deployments and wireless and wireline convergence accelerate, he added.
“We think this will be increasingly critical, particularly on a global basis, as next-generation networks emerge. By creating a hub-and-spoke network originating from the core and extending through the various layers of the edge, through the CoreSite platform we expect to provide our customer with market-leading solutions that meet the demand of future latency-sensitive use cases, reduces transit costs, and provides a one-stop shop on networking and compute,” Bartlett said.
Aside from physical assets, CoreSite’s customer relationships are also key. American Tower’s main customers are mobile network operators and it’s been looking at how to leverage edge data centers at the base of its tower real estate to tap new customers and bridge relationships with the likes of cloud providers, while also support existing users for new applications with its neutral-host infrastructure.
CoreSite brings relationships with large enterprises and cloud service providers that Bartlett said complements the tower company’s existing MNO customers, particularly as 5G applications come online.
“This augmented customer relationship position will help connect MNOs and cloud service providers across our distributed portfolio of real estate,” he said, pointing to increased visibility from the network core to edge as providing an opportunity to develop meaningful neutral-host compute facilities that meet more stringent low-latency requirements.
Bartlett also discussed how it fits into the evolution of the edge. CoreSite’s position gives American Tower a leading position in the core data center space with Tier 1 market interconnections. Over the next several years, Bartlett said American Tower sees low latency applications and connected devices and IoT driving data center demand across facilities at the metro edge in Tier 1 and Tier 2 markets. As those latency demands further increase, immersive mobile applications will need data processing at the mobile edge where American Tower has real estate and compute facilities can shift to base of cell towers and with C-RAN hubs.
“We will be positioned to play a meaningful role in the deployment of the shared edge infrastructure that will be necessary to facilitate this progression with a comprehensive network offering that significantly enhances the value proposition to an expanding customer base,” he said.
By 2026 American Tower estimates the total addressable market for mobile edge will be around $1 billion while the metro edge will be an approximately $2 billion market, with that figure expanding meaningfully over time.
The metro edge is one area where American Tower assets can bolster CoreSite, as the tower company has 43,000 U.S. sites and 175,000 sites globally – which can leverage both companies’ CSP relationships. In the metro edge, American Tower noted its own small-scale investments so far, while CoreSite brings its scalable colocation cloud and interconnectivity ecosystem and a strong position with key service provider customers.
International expansion also appears be in the cards, with Bartlett mentioning the global nature multiple times on the call.
CoreSite’s interconnection points and platform combined with American Tower’s global assets “creates an intriguing option to expand the core data center platform internationally, while simultaneously evaluating international network edge deployments,” he said.
In the third quarter CoreSite generated annualized revenue of $655 million and Adjusted EBITDA of $343 million. CoreSites’s top 10 customers drive around 40% of the company’s total revenues, while 32,000 interconnections account for approximately 14%.
“Given the competitive positioning of these facilities we expect the ongoing migration of enterprise workloads to public, private and hybrid clouds and rising demand for compute-oriented processing to result in continued momentum for the business,” Bartlett said, adding they can augment American Tower’s trajectory for AFFO long-term as it aims for double-digit annual growth.