Verizon reaches agreement to acquire Terremark Worldwide

US operator Verizon Communications has reached an agreement to acquire cloud and IT services company Terremark Worldwide in a deal worth $1.4 billion.

With Verizon developing its ‘everything as a service’ cloud strategy, in which it delivers IT solutions through a unified cloud platform to its customers, the deal marks a significant push by the company to deliver IT services to its customers over the internet. Terremark operates 13 data centres in the US, Europe and Latin America. Its flagship facility is carrier neutral co-location centre NAP of The Americas in Miami which carries the majority of the traffic from Latin America.

“Cloud computing continues to fundamentally alter the way enterprises procure, deploy and manage IT resources, and this combination helps create a tipping point for ‘everything as a service’,” said Lowell McAdam, president and COO at Verizon.

“Our collective vision will foster innovation, enhance business processes and dynamically deliver business intelligence and collaboration services to anyone, anywhere and on any device,” added Manuel Medina, chairman and CEO at Terremark.

George Hamilton, principal analyst, cloud computing at Yankee Group believes that Terremark’s carrier neutral colocation centre in Miami serves as a mere add-on on to the acquisition, with Verizon making this acquisition primarily for cloud computing capabilities.

“Terremark will operate as an independent subsidiary so there is no change to the co-location service,” said Hamilton.

A recent forecast by the Yankee Group consultancy firm estimated revenues in enterprise cloud computing services reached approximately $9 billion in 2010. This is forecast to grow at 30% year-on-year up until 2014, to reach a market value of approximately $22 billion. It is likely Verizon’s competitors will look at similar M&A activity in the space over 2011, according to Hamilton, “with successful web hosting providers like Equinix and Rackspace making potentially good acquisition targets.”

“We have not really seen this much start-up activity coupled with acquisition and consolidation in a technology market since the boom,” he said. “Cloud computing is the new big land grab that is going on right now; it’s a higher margin service and all of the carriers understand that the value of the network is really the services that you layer on top of it. The stocks of several hosting providers went up after the news of Terremark being acquired, so it would make sense for large operators like AT&T to add additional data centre space.”

Terremark will operate as a subsidiary of Verizon when the deal closes in Q1 2011.

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