Apollo Global is buying Rackspace for $4.3B
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Apollo Global is buying Rackspace for $4.3B
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Re: Apollo Global is buying Rackspace for $4.3B
#2Has there been any analysis on the upswing in acquisitions of cloud computing and storage companies? First EMC gets bought by Dell, now Rackspace is getting picked up. Is it just in response to growth on the part of Google and Amazon?
Re: Apollo Global is buying Rackspace for $4.3B
#3Interesting. In contrast just about a year ago Verio's web hosting assets were sold to EIG for a mere $36 million. Both companies were founded around the same time ~ 1996, and at some point at the top of the dot-com boom were the two dominant dedicated server providers out there.
Re: Apollo Global is buying Rackspace for $4.3B
#4Has there been any analysis on the upswing in acquisitions of cloud computing and storage companies? First EMC gets bought by Dell, now Rackspace is getting picked up. Is it just in response to growth on the part of Google and Amazon?
Apollo is a private equity firm, so they are most likely acquiring Rackspace because they see fat they can trim (read: laying people off, outsourcing labor, tax optimization) off a decently competitive company that they can possibly take public or sell in 5-10 years.
It's not so much about competing with Amazon, Google, etc. or advancing the state of the technology as much as making a bet that the brand is currently undervalued and that conditions in the cloud computing market will allow for a profitable exit in the medium term.
For examples of Apollo bets that have gone wrong see its LBO of Harrah's (basically bankrupt) or Linens 'n Things (bankrupt).
Re: Apollo Global is buying Rackspace for $4.3B
#5Rackspace has been looking for a buyer for a while. I suspect that their business is not in terribly good shape.
They even started consulting on AWS deployments a while back: "Need some help moving your servers over to AWS? We're here to help!"
Re: Apollo Global is buying Rackspace for $4.3B
#6Has there been any analysis on the upswing in acquisitions of cloud computing and storage companies? First EMC gets bought by Dell, now Rackspace is getting picked up. Is it just in response to growth on the part of Google and Amazon?
All of the above.
AWS (AMZN's public cloud reporting segment):
FY15 Revenues: $7.8 billion
CAGR (FY13-FY15): 59%
FY15 Op Margin: 23%
FY15 Revenues: $2.0 billion
CAGR (FY13-FY15): 14%
FY15 Op Margin: 10%Re: Apollo Global is buying Rackspace for $4.3B
#7> $32 per-share-offer represents a premium of 6 percent to Rackspace's Thursday closing price.
Quite a fall from almost $80 in 2013.
I was a satisfied Rackspace customer back around 2001 when I had a web hosting business, but it was truly a premium service - very expensive compared to competitors. We ended up going with our own bare metal eventually. Then, when everything moved to the cloud, Rackspace seemed a little behind the times and Heroku and AWS got my business.
Re: Apollo Global is buying Rackspace for $4.3B
#8Rackspace has been looking for a buyer for a while. I suspect that their business is not in terribly good shape. They even started consulting on AWS deployments a while back: "Need some help moving your servers over to AWS? We're here to help!"
Re: "Business not in terribly good shape" - there are 4.3 Billion reasons to suggest otherwise. This isn't the type of business that gets purchased without a lot of due diligence, and, we're not really in much of a tech bubble right now - so I thinks it's reasonable to asses that the underlying revenue/profit of Rackspace was sufficient to justify the (impressive) valuation.
Re: Apollo Global is buying Rackspace for $4.3B
#9I guess it was only a matter of time before they got bought out.
It's tough to compete against one of Google, Amazon or Microsoft, competing against all 3 at the same time in an area that all three consider to be core to their future must just be cut throat!
It's never great for a companies employee's to be taken over by a private equity firm, if you actually find someone whose had a good experience then please let me know, but given that this is a 38% premium over what RAX was trading at when the deal leaked on august 3rd, this is almost best case for rack space employee's and given that this is an all cash transaction they should get some liquidity out of the deal!!
Given that the RAX board unanimously approved the deal, I'm going to guess this is going through.
Often when a company is brought private by a PE firm they'll combine it with other portfolio companies before spinning it back out. I don't see any relevant companies in Apollo's portfolio that could be joined to RAX.
If you are wondering who in wall street makes money on these types of deal, its the usual suspects. Everyone wets their beak in take over transactions:)
- Financing provided by Citi, Deutsche, Barclays, RBC;
- Goldman advised RAX, Morgan Stanley also provided services in connection w/ deal; Citi, Deutsche, Barclays, RBC advised Apollo
Re: Apollo Global is buying Rackspace for $4.3B
#10Has there been any analysis on the upswing in acquisitions of cloud computing and storage companies? First EMC gets bought by Dell, now Rackspace is getting picked up. Is it just in response to growth on the part of Google and Amazon?
Apollo is a private equity firm, so they are most likely acquiring Rackspace because they see fat they can trim (read: laying people off, outsourcing labor, tax optimization) off a decently competitive company that they can possibly take public or sell in 5-10 years. It's not so much about competing with Amazon, Google, etc. or advancing the state of the technology as much as making a bet that the brand is currently…
(Disclaimer: former employee of Rackspace) That is exactly how I read it. While Rackspace has been doing pretty well, its just not growing as fast as its competition and Wall Street in concerned.
It is a big shame though. Rackspace is one of the few Texas-born companies that managed to strike it big and still have a very egalitarian culture. They have a very interesting culture and I wish it was something that could go on; a lot of my former coworkers absolutely love that environment. But it doesn't look like it will last for much longer.