Deal File – Run to the Cloud!

[Note: this the first in an irregular series looking at recent M&A transactions]

In the last two weeks, Verizon (VZ) and Time Warner Cable (TWC) spent significant money to acquire and bolster their footprint in business services, specifically, managed storage or “cloud” services.

On Thursday, January 27, Verizon spent $1.4 billion to purchase Terremark (TMRK), a Miami-based operator of data centers in the United States, Europe and Latin America, that provides managed information technology services, including hosting, disaster recovery, security and colocation. Their crown jewel data center, the NAP of the Americas in Miami was specially designed to link the U.S. to Latin America. Check out this bad boy’s specs and pic below.

The deal bolsters Verizon’s Business Services profile which, in addition to the communications and mobility services you’re aware of, also includes IT services (such as “cloud,” data center and managed services), and security services (such as identity and access management, and managed security services).

On the heels of that deal, this week Time Warner Cable (yes, the cable arm) announced its acquisition of NaviSite (NAVI), an Andover, MD-based provider of managed cloud services, managed hosting, and managed application services. Sound familiar? [Disclosure, GTCR, my employer, is a minority owner of NAVI. However, as a minority shareholder of a publicly traded company, the firm has no access to non-public information]

We can all agree “the cloud” is hot. Whether used for the delivery of SAAS applications like Salesforce or the storage of data like all your Facebook pictures, the need for data and application servers, as well as high-speed and ultra-reliable access to those applications and data is exploding. These deals have highlighted a new class of competitor in the the hosting and delivery of cloud services, with Telco/MSO’s Verizon and Time Warner Cable joining Microsoft, Amazon, HP, Dell, IBM and others in racing to provide a full slate of business services to their customers.

This is interesting to me, as it means that tradition “services” businesses, which is what Verizon and TWC are, are becoming more serious about diversifying away from their bread and butter service offerings (wireline /wireless services and cable, respectively). This is a different strategy shift than what we’ve seen from HP (acquisition of EDS), Dell (acquisition of Perot) over the past few years where hardware providers have looked to services to augment their core revenues.

If nothing else, these deals show the cloud market remains red hot. Looking forward, companies like  Saavis (SVVS.O) and Rackspace (RAX.N), whose stocks are up 13% and 23% YTD, respectively, may be in play as others (Comcast, Sprint ?) look to keep pace.

Finally, as a media/entertainment junkie, one other less-discussed element of these transactions intrigues me. For years, there has been discussion around consumers’ desire and media/entertainment companies’ efforts (or lack thereof) to allow consumers to access their digital media (e.g. downloaded music, movies, TV shows) anywhere from any device. While credentialing and format/standards are generally discussed as the larger hurdles to this utopia, storage is certainly a component as well. How about a world where Verizon houses your iTunes collection, which you then access seamlessly through your Verizon iPhone (finally!) or iPad. Um, thanks Apple, but I’ll have the 1GB version. Intrigued? I am. Please weigh in.