Apollo Takes Rackspace Private

August 29th, 2016 by · 3 Comments

I left early to take my eldest daughter to her first year in college, so of course by Murphy’s Law there was an acquisition 5 minutes later!  The rumor that Apollo Global Management was looking to buy out Rackspace turned out to be completely true.  

The deal will bring Rackspace shareholders $32 in cash, making the total value of the deal some $4.3B.  That’s a premium of 38% as compared to the pre-rumor price of three weeks earlier, and couple bucks higher than the stock was trading on Thursday.  Closing is anticipated in the fourth quarter, assuming there isn’t a revolt by shareholders or something.

It had been a long wait.  Rackspace started publicly looking for a buyer two and a half years ago, but no strategic buyer appeared and they decided to tough it out rather than give into the private equity offers at the time and took themselves off the table.  Two years later, the situation had changed arguably less than one might have expected.

So what changes with Rackspace in private equity hands?  Good question.  In the short term, probably not much.  They simply get to step out of the public spotlight and come up with a longer term plan to take on the market.  But the details of just how they might shift their approach to the cloud marketplace are for the future.  Today the talk is simply of ‘more flexibility to manage the business for long term growth and enhance our product offerings’, which simply restates the obvious.

With the big public cloud players crowding everyone else out with sheer size, there is also the danger they are becoming large and unwieldy and more unresponsive to customers.  That could mean that the era of scale first could at some point face a challenge from smaller, nimbler insurgents.  It will happen eventually, and perhaps that’s what Apollo is betting on.  All they have to do is keep Rackspace nimble.

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Categories: Cloud Computing · Mergers and Acquisitions

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3 Comments So Far

  • Jim says:

    A Private Equity acquisition usually means the same thing: Headcount reductions and massive belt tightening while the investors fix the company, at least the company’s bottom line, up to sell it again in about 5 years.

  • Richard Tucker says:

    I don’t like this comment.

    • Anonymous says:

      The truth hurts, sometimes. I would second that that’s what Private equity usually means. It often also signals less investment in innovation and new services.

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