Digital Realty seeking to acquire Telx

Digital Realty Trust is working on a bid to acquire private equity-owned data centre peer Telx Group for more than US$2 billion (A$2.6 billion), according to sources familiar with the matter.

Digital Realty's move is the latest sign of consolidation in the data centre sector, as businesses' burgeoning demand for data and video is fueling a revival in fibre optic services and data storage.

The real estate investment trust - which rents out space that companies use for data centres - is one of several bidders for Telx, sources said this week.

The auction for Telx, which is owned by ABRY Partners LLC and Berkshire Partners LLC, is at its early stages.

The sources asked not to be identified because the sale process is confidential. Telx, Digital Realty and Berkshire Partners declined to comment, while ABRY Partners did not immediately respond to a request for comment.

Privately-held data centre companies have been selling to larger publicly traded rivals in recent months, with Digital Realty rival QTS Realty Trust  buying Carpathia Hosting, fibre network company Zayo Group Holdings buying Latisys and CyrusOne purchasing Cervalis.

The sale of Telx, however, would be the largest deal in the sector since Equinix said last month it would buy British peer TelecityGroup for US$3.6 billion.

Digital Realty's primary business is wholesale colocation, where customers rent physical space from the company to run their own data centres.

Retail colocation, where customers lease cabinets, racks and cages from the data centre operator, has become a growing business for Digital Realty, and buying Telx would help expand that business.

It was first reported in late April that Telx was exploring a sale.

When asked in early May whether Telx would be a good fit for the company, Digital Realty's chief investment officer Scott Peterson said "it's reasonable to assume that there's some compelling strategic rationale around that".

He did not comment on whether his company would bid for Telx.

Based in New York, Telx owns 20 data centres, including three major ones in New York City. Its customers range from small businesses that only need half of a cabinet to global companies requiring a full-floor lease.