Jim Ousley, CEO and Chairman of Savvis (s svvs) is having a great day. Yesterday Verizon Communications agreed to buy rival data center and managed hosting company Terremark for $1.4 billion, and today he has joined a small group of companies that are suddenly sought after as potential acquisition targets. In response his firm’s stock has traded up closing almost 14 percent higher than yesterday’s close.
In buying Terremark (s tmrk), which is about half the size of Savvis, Verizon (s vz) was aggressively pursuing the enterprise cloud computing market. Like many other service providers, Verizon already offered infrastructure as a service and other cloud products, but it now has a larger presence and scale, something other service providers will need as well. And Wall Street knows it. “Our share volumes are 10 times what they are on an average day,” Ousley said.
However giddy this deal may make him Ousley notes that Savvis will continue to execute on its strategic plan to grow organically and make a few “tactical acquisitions” in markets such as Europe where it doesn’t have a huge presence. He notes that Savvis also plans to buy data centers and expand operations in Asia-Pacific and South America, especially Brazil, a country also mentioned in the rationale for the Verizon deal. Savvis launched its first cloud product in 2009.
What he doesn’t intend is to move up the stack as other larger infrastructure providers are trying to do, offering platforms as a service or more software on top of the infrastructure. After the initial denial he said, “We have a lot of partners that are doing that and we don’t know whether we want to get in and be constantly moving up the food chain.”
But he does see consolidation as a continuing trend for the coming year, saying, “There’s a fair amount already, and there aren’t a lot of players in this space so I can understand why there’s conjecture. And we’re 2.5 times the size of Terremark and there’s Rackspace (s rax) and Equinix (s eqix) and us. I’ve been saying for a while we’ve been undervalued at 7.5 EBITDA and [Terremark] just sold for 15 times that.”
Given the small number of players, the credibility of Verizon as a company that can set valuations and the need for scale to provide enterprise-class infrastructure as a service, Ousley is like a property owner whose neightbor just got offered a multi-million deal on a smaller house. Now the question isn’t really whether or not Savvis will sell, but when and for how much.
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