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Apollo Global is buying Rackspace for $4.3B

businessinsider.com

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Re: Apollo Global is buying Rackspace for $4.3B

#101

Post by beachstartup »

srunni wrote: post #59
whateverdudes wrote: post #38

Earlier quoted context omitted.

Off topic, but can you tell me more about the issue with being taken over by a private equity firm? I work for a 10k employee company who will be taken off stock exchange and sold to a Chinese equity firm.

If you want to know more about PE firms and LBOs, check out the book Barbarians at the Gate: The Fall of RJR Nabisco : https://www.amazon.com/gp/aw/d/0061655554

i read this book, it's good. i got the overwhelming feeling that once started, the buyout process is outside of any one person or group's control. it takes on a life of its own.

Re: Apollo Global is buying Rackspace for $4.3B

#103

Post by shostack »

NetStrikeForce wrote: post #83
dave_sullivan wrote: post #50

Earlier quoted context omitted.

Besides cost cutting via layoffs being a favored (although by no means the only) strategy for PE firms, there's also debt servicing. Typically, PE companies buy the company while only putting down a small portion of the purchasing price. They finance the rest through banks. The whole concept is pretty similar to buying a house with a mortgage, except you're buying a company. The debt payments are then a tax write-off…

Nice explanation. What if the people that got the mortgage for the house just want to make it pretty an resell it? I guess that's the fear here, when the buyer is an investment company (house flipper) and not a technology company that wants to increase their market share or add technology / talent to their portfolio.

And isn't that usually the case with PE? Are there any good examples of them NOT doing this?

Re: Apollo Global is buying Rackspace for $4.3B

#104

Post by abakker »

abakker wrote: post #93

Rackspace's problem is this: they are not really a hosting business. They are a Managed services business. They USED to be a hosting business, but it turned out that their real value add was in running clouds for companies that couldn't do it themselves. My guess is that the real reason they sought this is that the hosting business is not going to grow, and they don't want to invest in it. Instead, they are going to…

Shameless self plug - http://insights.isg-one.com/rackspace-sold-toward-future-man...

Re: Apollo Global is buying Rackspace for $4.3B

#105

Post by shostack »

wpietri wrote: post #85
whateverdudes wrote: post #38

Earlier quoted context omitted.

Off topic, but can you tell me more about the issue with being taken over by a private equity firm? I work for a 10k employee company who will be taken off stock exchange and sold to a Chinese equity firm.

The NYT did a good piece a few years back on how private equity firms totally destroyed Simmons, a mattress company: http://www.nytimes.com/2009/10/05/business/economy/05simmons... Basically, in theory the best way to make money is to serve your customers well. But in practice, financial engineering creates a lot of opportunities where those diverge. This is hard on employees, who value non-financial things like stab…

I'd say employees certainly value financial things and that "recurring revenue" from their paycheck is one of them. Liquidity events from a transaction would be another. Unfortunately they typically lose the former and almost certainly never get the latter in a PE deal.

Re: Apollo Global is buying Rackspace for $4.3B

#106

Post by nullcipher »

whateverdudes wrote: post #38
chollida1 wrote: post #9

I 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 m…

Off topic, but can you tell me more about the issue with being taken over by a private equity firm? I work for a 10k employee company who will be taken off stock exchange and sold to a Chinese equity firm.

Let me guess.. media.net?

Re: Apollo Global is buying Rackspace for $4.3B

#107

Post by 20years »

jszymborski wrote: post #92
20years wrote: post #88

Earlier quoted context omitted.

Oh Yikes, totally forgot Mailgun is owned by RS. I have a few things using the Mailgun API too. I am hesitant to move to Sendgrid with what happened a couple of weeks ago and how they handled the outrage. At this point, I may just setup & manage my own box for email again. It is a real PITA but I just don't have a lot of faith in these 3rd party API's anymore.

There's always Amazon SES when looking for cheap, low-volume transactional email, but it's always a headache to setup.

Used SES in the past. Poor delivery and they are super strict especially once you start sending volume.

Re: Apollo Global is buying Rackspace for $4.3B

#108

Post by JDDunn9 »

archildress wrote: post #54
whateverdudes wrote: post #38

Earlier quoted context omitted.

Off topic, but can you tell me more about the issue with being taken over by a private equity firm? I work for a 10k employee company who will be taken off stock exchange and sold to a Chinese equity firm.

The hallmark of being owned by private equity is slashes t every controllable expense, running supremely lean and generally aligning with short term rewards. Private equity groups don't make money from holding businesses, typically. They make the serious returns when they sell a business to a larger company. Keeping expenses low increases margins and drives the best returns. The problem is that PE management aligns w…

You have it backwards. It's activist investors (a.k.a. corporate raiders) that push for short-term improvements in the stock market. Investing in long term growth has been a common reason companies went private. While flipping under-valued companies was popular in the 80's, those days of easy pickings are long gone. Private equity is highly competitive today, and you have to have some real management skill to make money (known as "alpha" in the biz).

Re: Apollo Global is buying Rackspace for $4.3B

#109

Post by postgeographic »

frik wrote: post #84
dave_sullivan wrote: post #50

Earlier quoted context omitted.

Besides cost cutting via layoffs being a favored (although by no means the only) strategy for PE firms, there's also debt servicing. Typically, PE companies buy the company while only putting down a small portion of the purchasing price. They finance the rest through banks. The whole concept is pretty similar to buying a house with a mortgage, except you're buying a company. The debt payments are then a tax write-off…

Thanks for the insightful explanation! What do PE companies do with more than one company with kind of dated offerings in the same/similar niche? Reduce the fat, merge them and sell them to a large company? E.g. Qlik, Riverbed and Dynatrace https://thomabravo.com/portfolio/all/current/

Yeah, that's called a buy-and-build strategy, or a bolt-hole strategy. A large number of industries or market segments that are fragmented end up consolidating this way. For example, Lumison is a data center business here in the UK, and they got bought out by Bridgepoint Development Capital. Subsequently BDC and Lumison went on to buy a few other data centers, making one larger data center with the attendant economies of scale

Re: Apollo Global is buying Rackspace for $4.3B

#110

Post by hga »

monkmartinez wrote: post #78
hga wrote: post #74

Earlier quoted context omitted.

Hmmm, in another domain I'm familiar with, Cerberus Capital Management smushed together a number of firearms and ammo companies into the Freedom Group ( https://en.wikipedia.org/wiki/Freedom_Group ), and without to my knowledge screwing them up. That said, Remington Arms is still a sub-par manufacturer of guns, they haven't noticeably improved their quality, or behavior when caught out, see e.g. the lawsuit they cont…

Most of the "freedom group" make the same thing or operate in the same space. That is "tacti-cool" and people that want their names on lists for silencers, SBR's and other goodies they make. I bet there was a crap-ton of consolidation that we didn't hear about. I bet a lot of people lost jobs in said consolidation.

No, not really. Only one of their companies is inherently into NFA items, and H&R and Marlin, which bought them prior to it being bought by Freedom, and Dakota and Parker (!) aren't even into those sorts of guns. And Barnes only makes ammo and especially bullets. (Para USA makes double stack 1911s, which are technically "assault weapons" due to the increased magazine capacities, but based on an 106 year old design.) Only Advanced Armament Corporation (silencers), Bushmaster, DPMS, TAPCO (accessories) sell such items, and maybe you'd count Remington's hunting configured and camouflaged AR-10 and AR-15 pattern rifles, but that makes them the antithesis of "tacti-cool".

The loss of jobs from the consolidations are well known, plus overlaid with that is Remmington moving more and more stuff out of high cost, unionized, viciously anti-gun New York state, away from their original factory, where they were the first who's still in business to make arms in the US (or so they say, e.g. https://en.wikipedia.org/wiki/Remington_Arms and it's certainly a very old company and that complex is obviously very old).

ADDED: Without consolidation, it's entirely likely one or more of the traditional hunting arms companies Marlin, Dakota and/or Parker would have gone out of business like H&R did, there's much less Gun Culture 1.0 demand for such, and plenty of fine used specimens available.

Remington might have been less likely to do that if still under their original management, on the other hand, under Cerberus they were the first US ammo manufacturer to respond to the 2008 and on ammo shortage by buying new capital equipment to set up new production lines, which is not supposed to be the usual MO of private equity owned firms.

So my point is that these consolidated companies' products haven't, to my knowledge, suffered from the process, whereas a lot of us fear Rackspace's offerings will suffer (well, even more than they do today, one reason we can be pretty sure they put themselves up for sale).

ADDED: On the other hand, Zilkha & Co, which bought 85% of Colt, is raping it up, down, right and left, the very worst sort of this type of thing.

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