SAN FRANCISCO—Digital Realty Trust Inc. will double the size of its footprint in the colocation business with its acquisition of Telx Inc. from private equity firms ABRY Partners and Berkshire Partners. Expected to close by the end of 2015, the deal is valued at $1.886 billion. Concurrently, DLR said Tuesday it had commenced a public offering of 10.5 million common shares, proceeds of which will help finance the Telx acquisition.

With about a 4% share of the wholesale colocation market, New York City-based Telx is among the largest providers in a fragmented sector. The company managed 20 data center facilities as of this past March 31, 11 of which are leased from DLR; a 12th is partially subleased from the REIT.

“Telx's well-established colocation and interconnection businesses provide access to two rapidly-growing segments with longstanding customer relationships in top-tier metropolitan areas such as New York and Silicon Valley,” says A. William Stein, DLR's CEO. “The fact that more than half of Telx's 20 facilities are run out of Digital Realty properties further highlights the strategic fit as well as the potential incremental revenue opportunities we expect to be able to pursue as one company on a global basis.”

In connection with the pending deal, DLR has received a commitment from a syndicate of lenders for a $1.85-billion unsecured term loan bridge facility. Proceeds will be available, if necessary, to fund a portion of the acquisition of Telx. 

BofA Merrill Lynch and Morgan Stanley are serving as DLR's financial advisors and Latham & Watkins LLP is serving as the REIT's legal counsel in connection with the pending acquisition. Barclays and DH Capital are serving as financial advisors and Kirkland & Ellis LLP is serving as legal counsel to ABRY Partners, Berkshire Partners and Telx in connection with the pending acquisition.

Following Tuesday's announcement, Standard & Poor's and Fitch Ratings both affirmed their BBB ratings on DLR. S&P said that while credit metrics will deteriorate slightly, they'll remain in line with an "intermediate" risk profile, while Fitch said it expects the REIT's metrics to improve in line with lon ger-term hiustorical trends, even as the Telx deal moderately increases near-term leverage. DLR will provide additional details about the pending Telx deal during its second-quarter earnings call, scheduled for July 30.