Exclusive: Digital Realty seeking to acquire Telx

By Liana B. Baker and Mike Stone

(Reuters) - Digital Realty Trust Inc is working on a bid to acquire private equity-owned data center peer Telx Group Inc for more than $2 billion, in a deal that would diversify its business, according to people familiar with the matter.

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

Digital Realty, a San Francisco-based real estate investment trust that rents out space that companies use for data centers, is one of several U.S. and international bidders for Telx, the people said this week. The auction for Telx, which is owned by ABRY Partners LLC and Berkshire Partners LLC, is at its early stages, the people added.

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 center companies have been selling to larger publicly traded rivals in recent months, with Digital Realty rival QTS Realty Trust Inc buying Carpathia Hosting, fiber network company Zayo Group Holdings Inc 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 2.35 billion pounds ($3.6 billion).

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

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

Reuters first reported April 28 that Telx was exploring a sale.

When asked on May 5 by an equities analyst about whether Telx would be a good fit for the company, Digital Realty's Chief Investment Officer Scott Peterson said May 5 that "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 centers, including three major ones in New York City. Its customers range from small businesses that only need half of a cabinet in data centers to global companies requiring a full-floor lease.

(Reporting by Liana B. Baker and Mike Stone in New York; Additional reporting by Greg Roumeliotis in New York; Editing by Christian Plumb)