Telecity bought by US rival in deal to rule the clouds

Telecity streams services like Netflix and Spotify (Getty)

The US data centre business Equinix will spend £2.35bn snapping up its British rival Telecity in one of the biggest takeovers in the fast-growing cloud-based internet sector, which serves streaming services like Netflix and Spotify.

Telecity, which runs huge computer centres that process traffic on the internet, has benefited from the boom in online streaming, as well as demand in the City for ever-faster connections for high-frequency computer trades, where every millisecond counts.

The cash-and-shares deal will create the largest data centre business in Europe and means that a planned £438m merger between Telecity and its Dutch rival Interxion is now off the table.

Equinix first approached Telecity in March with a £2.3bn offer, and yesterday’s deal, which still needs the approval of shareholders, is a 35 per cent premium on Telecity’s share price in February.

Telecity investors will hold 10.1 per cent of the combined company and Telecity’s chairman, John Hughes, will join the new board of Equinix when the deal completes at some point next year.

The sector has boomed in recent years as the rise of smartphones means more consumers want direct access to services, music and videos, while businesses feel more secure in keeping sensitive data in clouds through the services offered by Telecity and Equinix.

One of the biggest online cloud operations, using Equinix technology, is Amazon Web Services, which recently revealed that revenues are growing at a rate of 40 per cent a year, with the volume of data it stores more than doubling from 1 million monthly users.

Equinix already has a strong position in financial markets in the US, working with trading firms and banks, while Telecity has stayed away from those sectors. The deal will give the US business access to London’s financial centres, especially with Telecity’s data centre in London’s Docklands, near several major banks.

Telecity was founded in 1998 and has 37 data centres across Europe. It was built up by Mike Tobin, an unconventional boss who organised a company trip swimming with sharks and kidnapped executives as part of a team-building exercise.

Mr Tobin quit suddenly last year, but still has a stake and is expected to make about £8m from the deal.