The Cloud

Apollo to Take Rackspace Private in $4.3B Deal

The acquisition by the PE firm may help Rackspace compete with the likes of Amazon and Google in the cloud computing services market.
Matthew HellerAugust 26, 2016

Apollo Global Management has agreed to take Rackspace Holdings private for $4.3 billion, making an apparent bet on growth in the market for cloud computing services.

Rackspace is best known for managing server farms, a stable but low-growth business that accounts for about 70% of its revenue. It has diversified by selling cloud services to enterprises that use other companies’ servers, competing with the likes of Amazon Web Services, Google, and Microsoft.

As TechCrunch reports, the shift toward services has translated into improved quarterly results but hasn’t been rewarded by Wall Street. Rackspace’s stock recently traded as low as $16.76, down from almost $80 back in 2013 and a high of close to $55 in early 2015.

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With the help of private-equity firm Apollo, Rackspace is now going private at $32 per share, a premium of 38.2% to the closing price on Aug. 3, the day before reports that it was in advanced talks with PE firms.

“It remains to be seen how Apollo will manage Rackspace and how patient it will be, but there may be an upside for the company here as it will be able to grow and continue its transformation at its own pace,” TechCrunch said.

Rackspace’s co-founder and chairman, Graham Watson, said that as a private company, it “will be best-positioned to capitalize on our early leadership of the fast-growing managed-cloud-services industry.”

“We are presented with a significant opportunity today as mainstream companies move their computing out of corporate data centers and into multi-cloud models,” CEO Taylor Rhodes added in a news release.

Rackspace offers managed hosting services with a strong focus on helping enterprises manage both their private clouds and cloud deployments on the likes of AWS and Microsoft Azure.

But Reuters cautioned that cloud customers “may wonder whether it makes sense to pay for additional support and services, especially as Amazon and Microsoft continually make their web services easier to use. The growth of cloud computing, however, may mean there’s plenty of room on the Amazon and Microsoft bandwagons.”