Acquisitions

9 Months Ended

Sep. 30, 2020

2020 Acquisitions

On March 2, 2020, the Company acquired all outstanding shares and equity awards of Packet Host, Inc. (“Packet”), a leading bare metal automation platform for a total purchase consideration of approximately $290.3 million in cash. In addition, the Company paid $16.1 million in cash to accelerate the vesting of unvested Packet equity awards for certain Packet employees, which was recorded as stock-based compensation expense during the three months ended March 31, 2020. In connection with the acquisition, the Company also issued restricted stock awards with an aggregated fair value of $30.2 million and a three-year vesting period, which will be recognized as stock-based compensation costs over the vesting period. The acquisition, combined with the Company’s own organic bare metal service in development, is expected to accelerate Equinix's strategy to help enterprises deploy hybrid multicloud architectures on Equinix's data center platform.

On January 8, 2020, the Company completed the acquisition of three data centers in Mexico from Axtel S.A.B. de C.V. (“Axtel”) for a total purchase consideration of approximately $189.0 million, including $175.0 million in cash and $14.0 million the Company paid to the seller for recoverable value-added taxes ("VAT") incurred prior to the acquisition, which related to a corresponding VAT receivable acquired upon acquisition. The acquisition supports the Company’s ongoing expansion to meet customer demand in the Americas region.

Both acquisitions constitute a business under the accounting standard for business combinations and, therefore, were accounted for as business combinations using the acquisition method of accounting. Under the acquisition method of accounting, the total purchase price is allocated to the assets acquired and liabilities assumed measured at fair value on the date of acquisition. As of September 30, 2020, the Company had not completed the detailed valuation analysis to derive the fair value of assets acquired and liabilities assumed from the Packet acquisition, including property, plant and equipment, intangible assets and the related tax impacts; therefore, the purchase price allocation is based on provisional estimates and subject to continuing management analysis. As of September 30, 2020, the Company updated the preliminary allocation of purchase price for the Packet acquisition from the provisional amounts reported as of March 31, 2020, and the adjustments made were not significant. The

changes in fair value of acquired assets and liabilities assumed did not have a significant impact on the Company's results of operations for any reporting periods prior to September 30, 2020. As of September 30, 2020, the Company had completed the detailed valuation analysis to derive the fair value of assets acquired and liabilities assumed from the Axtel acquisition and updated the final allocation of purchase price. No purchase price allocation adjustments were made from the provisional amounts reported as of March 31, 2020.

A summary of the preliminary allocation of total purchase consideration is presented as follows (in thousands):


	Packet		Axtel
Cash and cash equivalents	$	1,068	$	—
Accounts receivable	5,098		—
Other current assets	299		14,048
Property, plant and equipment	27,945		76,407
Operating lease right-of-use assets	1,519		1,646
Intangible assets	62,700		22,750
Goodwill	227,669		78,902
Other assets	138		—
Total assets acquired	326,436		193,753
Accounts payable and accrued liabilities	(1,275)		(238)
Other current liabilities	(860)		—
Operating lease liabilities	(1,519)		(1,586)
Finance lease liabilities	(27,945)		—
Other liabilities	—		(162)
Deferred tax liabilities	(4,539)		(2,749)
Net assets acquired	$	290,298	$	189,018

The following table presents certain information on the acquired intangible assets (in thousands):


Intangible Assets	Fair Value		Estimated Useful Lives (Years)	Weighted-average Estimated Useful Lives (Years)
Packet:
Trade names	$	1,600	3.0	3.0
Existing technology	5,100		3.0	3.0
Customer relationships	56,000		10.0	10.0
Axtel:
Customer relationships	22,750		15.0	15.0

The fair value of the Packet trade name was estimated using the relief from royalty method under the income approach. The Company applied a relief from royalty rate of 1.0% and a discount rate of 8.0%. The fair value of existing technology was estimated under the cost approach by projecting the cost to recreate a new asset with an equivalent utility of the existing technology. The key assumptions of the cost approach include total cost, time to recreate and functional obsolescence.

The fair value of customer relationships acquired from Packet and Axtel was estimated by applying an income approach, by calculating the present value of estimated future operating cash flows generated from existing customers less costs to realize the revenue. The Company applied a discount rate of 8.0% for Packet and 13.3% for Axtel, which reflects the nature of the assets as they relate to the risk and uncertainty of the estimated future operating cash flows, as well as the risk of the country within which the acquired business operates.

The fair value of property, plant and equipment acquired from Packet and Axtel was estimated by applying the cost approach, with the exception of land, which was estimated by applying the market approach. The key

assumptions of the cost approach include replacement cost new, physical deterioration, functional and economic obsolescence, economic useful life, remaining useful life, age and effective age.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed. Goodwill is attributable to the workforce of the acquired business and the projected revenue increase expected to arise from future customers after the Packet and Axtel acquisitions. Goodwill from both acquisitions is not amortizable for local tax purposes and is attributable to the Company's Americas region.

The Company incurred transaction costs of approximately $11.2 million during the nine months ended September 30, 2020 and an insignificant amount of transaction costs during the three months ended September 30, 2020 for both the Packet and Axtel acquisitions combined. The operating results of both acquisitions are reported in the Americas region following the date of acquisition. During the three months ended September 30, 2020, the Company's results of operations include $13.4 million of revenues and $7.5 million of net loss from operations from the combined operations of Packet and Axtel. During the nine months ended September 30, 2020, the Company's results of operations include $34.9 million of revenues and $27.8 million of net loss from operations from the combined operations of Packet and Axtel. The net loss incurred during the nine months ended September 30, 2020 was primarily attributable to the $16.1 million stock-based compensation expense incurred to accelerate the vesting of certain Packet employees’ unvested Packet equity awards at the close of the Packet acquisition.

Acquisition of Bell Data Centers (the "Bell Acquisition")

On October 1, 2020, the Company completed the acquisition of 12 data center sites across Canada from BCE Inc. ("Bell") for approximately C$961 million or approximately $723.9 million at the exchange rate in effect on October 1, 2020, with one remaining data center in Ottawa Canada, which the Company expects to be acquired in the fourth quarter of 2020 as the closing conditions are satisfied, for an additional purchase price of C$80.0 million, or $60.3 million at the exchange rate in effect on October 1, 2020. The acquisition supports the Company’s ongoing expansion to meet customer demand in Canada. The operating results of the acquired business will be reported in the Americas region following the date of acquisition. The Bell Acquisition constitutes a business under the accounting standard for business combinations and, therefore, will be accounted for as a business combination using the acquisition method of accounting. Goodwill from the Bell Acquisition is not expected to be deductible for local tax purposes and is attributable to the Company's Americas region. The valuation of assets acquired and liabilities assumed are still being appraised by a third-party and as such, the purchase price allocation is not yet complete.

Pending Acquisition of GPX India

On August 7, 2020, the Company entered into an agreement to purchase the India operations of GPX Global Systems, Inc. ("GPX India"), representing two data centers in Mumbai, India for approximately $161.0 million in an all-cash transaction (the “GPX India Acquisition”). The GPX India Acquisition is expected to close in the first quarter of 2021, subject to customary closing conditions including regulatory approval. Upon the close of the acquisition, the operating results of the acquired business will be reported in the Asia-Pacific region.

2019 Acquisition

On April 18, 2019, the Company completed the acquisition of Switch Datacenters' AMS1 data center business in Amsterdam, Netherlands, for a cash purchase price of approximately €30.6 million or approximately $34.3 million, at the exchange rate in effect on April 18, 2019. As of September 30, 2019, the Company had completed the detailed valuation analysis to derive the fair value of assets acquired and liabilities assumed and updated the final allocation of purchase price.