CenturyLink Spends Big to Buy Its Way into the Cloud with Savvis Acquisition

| April 29, 2011 | Data Center Services
| Analyst: Amy Larsen DeCarlo

Event Summary

April 27, 2011 – CenturyLink is acquiring Savvis in a cash and stock merger valued at $2.5 billion, plus assumption of approximately $0.7 billion in debt. With the addition of Savvis, CenturyLink will expand its scale as a managed hosting and colocation provider and accelerate its ability to deliver managed hosting and cloud capabilities to its business customers.

Quick Take

Analytical Summary

• Current Perspective: Positive on CenturyLink’s planned Savvis acquisition, because the deal will give the company better footing in high-growth – and potentially very profitable – enterprise data center services, including managed hosting and collocation. CenturyLink will inherit a set of traditional data center services that boast an enterprise customer base in the thousands. CenturyLink will also pick up Savvis’ private and public Symphony cloud services. This will launch the company into the on-demand services space, giving the provider a virtualized services story. However, the cost of the acquisition may be too much for the already debt-laden CenturyLink, which has made a string of costly purchases.

• Vendor Importance: High to CenturyLink, because the company needed a broader set of data center services to provide a larger set of managed IT solutions. The company needs these data center services to support the enterprise customers that it gained through its Qwest acquisition and to build on that base. Savvis will give CenturyLink both the facilities (48 total data centers combining Qwest and Savvis’ assets) and an additional international network footprint (Savvis has a reach into 45 countries) to scale to win larger and more lucrative managed services contracts.

• Market Impact: Moderate on the data center services market as a whole and the cloud computing sector specifically, because while Qwest and Savvis are both established managed services players, pulling their services together makes CenturyLink a potentially disruptive force. While the competitive landscape is unlikely to change dramatically, being part of the much larger CenturyLink company gives the combined Qwest Business Markets and Savvis organizations access to each other’s resources, and thus more cross-marketing and cross-selling leverage over the longer term.

CLIENTS ONLY

Current Perspective

Competitive Strengths and Weaknesses

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Analytical Perspective

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