Cloud Computing Buyout Game: Is Savvis Next?

by: Paolo Gorgo

Savvis (NASDAQ:SVVS) has been on a positive ride in early trading, as buyout rumors spread during the weekend.

On Friday, PE Hub reported the rumor that Savvis had hired investment bank Qatalyst Partners as its financial adviser, fueling takeover speculation that have surrounded the company since the Terremark (NASDAQ:TMRK) and Navisite (NASDAQ:NAVI) acquisitions by Verizon (NYSE:VZ) and Time Warner Cable (TWC) took place.

Here is a quote from the PE Hub article:

Savvis, the information tech services provider, has hired Qatalyst Partners, three sources say. Savvis, which denied in January that it was in sales talks, is now in discussions with several potential buyers, one person says.

However, another source says that Qatalyst’s hiring isn’t "definitive."

"We don’t comment on rumor and speculation," a Savvis spokesman wrote in an email.

As Rich Miller reminds in his Data Center Knowledge article, Savvis shares enjoyed a steady growth since the Terremark deal was announced:

The company’s shares were trading at $26.50 when the Verizon-Terremark deal was announced, but quickly climbed as high as $36.29 a share on Feb. 16 before closing Friday at $33.23 a share.

During today's trading, Savvis shares reached a peak of + 9% on the rumor.

In several interviews released to CNBC and WSJ, Savvis CEO had underlined that the company was looking for ways to compete with bigger players in the cloud computing arena and that could include partnerships or even a sale of the company.

According to Dow Jones Newswires’s Steven Russolillo, however, the rumors should be disgregarded, as he quoted Savvis CEO Jim Ousley as stating, "We have not had any discussions with Qatalyst, not a single one. We have no idea where that rumor came from, we’ve never talked to those people."

Since this update, shares lost most of the morning gain.

To get a more complete picture, it should be noted that Savvis still has a large part of its revenue stream linked to IP Services, a business characterized by declining unit prices and that will make it difficult for the company to attract the same multiples as Terremark, for example. Data center services probably represent the most valuable asset of the company.

As we've done in the past, we'd like to remind our readers that while "cloud computing" is a hot theme on Wall Street, the revenues generated by these services still remain minimal, as shown by the latest numbers released by Savvis and Terremark, that achieved an annual run rate (Q4 numbers annualized) of only $20 million and $ 37.5 million respectively related to cloud computing.

Savvis recently reported Q4 results, which we commented on here on SA.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.