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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

#131

Post by wpietri »

shostack wrote: post #105
wpietri wrote: post #85

Earlier quoted context omitted.

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.

I'm not denying the financial angle. But people value job stability beyond the pure impact on their bank account. Even if you know you can switch to another job immediately, the worry that you could be laid off at any moment is unpleasant for many.

Re: Apollo Global is buying Rackspace for $4.3B

#132

Post by frakr »

r00fus wrote: post #121
narrator wrote: post #100

Earlier quoted context omitted.

It also depends on the kind of PE firm. The vulture firms will buy a stable firm and load it up with debt doing stock buybacks and then cash out and let the company crater. Other firms, like Texas Pacific Group, are turn around specialists that take struggling firms and fix their business processes to make them run better and raise the stock price by actually building a better company. There are a lot more of the for…

So where does Apollo Global sit on this spectrum of PE vulture turnaround ?

They own for-profit education companies like University of Phoenix. Read up on their history, especially the law suits, to get an idea of what the management's values are like: https://en.wikipedia.org/wiki/University_of_Phoenix

Re: Apollo Global is buying Rackspace for $4.3B

#133

Post by kregasaurusrex »

bluetwo wrote: post #77
samfisher83 wrote: post #18

Earlier quoted context omitted.

PE companies usually do. They will just layoff a bunch of people cut salaries and probably saddle it with debt and get as much cash flow they can from the company.

Layoff the people with know-how, but also hire a bunch of salespeople with lucrative commission plans.

Primarily this. PE firms tend to do a poor job at putting people in charge who know a company's full stack operations, and tend to underpay new non-sales hires which results in a net loss of talent for the company. Do this too often and you become a stagnant company that can't draw in new customers.

Re: Apollo Global is buying Rackspace for $4.3B

#134

Post by coredog64 »

JDDunn9 wrote: post #108
archildress wrote: post #54

Earlier quoted context omitted.

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 mo…

One fairly recent example of this in the software business is TIBCO. They were making stupid short-term decisions to satisfy investors. The theory was that going private would allow them to reorganize the business and focus on core competencies without second-guessing by investors.

That or it was just a way for Vivek Ranadive to get the maximum payout for his equity stake so that he could focus on running his NBA team.

As a side note, I went to the annual TIBCO conference right before the buyout and it was pretty clear there that Vivek didn't give a wet rat's rear about TIBCO or software anymore and just wanted to spend his day being an NBA owner.

Re: Apollo Global is buying Rackspace for $4.3B

#135

Post by akulbe »

akulbe wrote: post #91

I understand that publicly traded companies are one cornerstone of our economy. That said, it's depressing to see companies get bought and sold just to move money around, and the people that work in those jobs completely ignored, or just seen as pawns to manipulate for nothing more than the bottom line. To me, when a company goes from private to public, it's not something to celebrate in the long-term. The company's…

When I think of companies "doing it right", I think of the ones who choose to stay private and retain control. Slow but methodical growth.

Basecamp. Dyson. Cargill. Patagonia.

(to name a few)

Re: Apollo Global is buying Rackspace for $4.3B

#136

Post by ansible »

frakr wrote: post #132
r00fus wrote: post #121

Earlier quoted context omitted.

So where does Apollo Global sit on this spectrum of PE vulture turnaround ?

They own for-profit education companies like University of Phoenix. Read up on their history, especially the law suits, to get an idea of what the management's values are like: https://en.wikipedia.org/wiki/University_of_Phoenix

Ugh, those guys.

So... this is not good news for the customers of Rackspace.

Re: Apollo Global is buying Rackspace for $4.3B

#137

Post by jetsnoc »

colinramsay wrote: post #11

Over the past six months I've been battling with poor service from Rackspace, with hosts mysteriously dying and their agents are trying to upsell me (load balancers for a single server, for example). We're migrating away but this doesn't surprise me.

I recently had a very, very poor experience with them and their Managed AWS Cloud Services. I escalated and the sales rep stated "I'll share your feedback with leadership." Haven't heard another single word out of him. As you can imagine, their days as a vendor are numbered.

Re: Apollo Global is buying Rackspace for $4.3B

#138

Post by rattray »

frakr wrote: post #132
r00fus wrote: post #121

Earlier quoted context omitted.

So where does Apollo Global sit on this spectrum of PE vulture turnaround ?

They own for-profit education companies like University of Phoenix. Read up on their history, especially the law suits, to get an idea of what the management's values are like: https://en.wikipedia.org/wiki/University_of_Phoenix

"management's values" are probably "make money" even for the turnaround PR firms.

The real question is of "strategy", not "values", in the financial industry.

Anyone have a tl;dr for Apollo on that?

Re: Apollo Global is buying Rackspace for $4.3B

#139

Post by rat_1234 »

narrator wrote: post #100
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…

It also depends on the kind of PE firm. The vulture firms will buy a stable firm and load it up with debt doing stock buybacks and then cash out and let the company crater. Other firms, like Texas Pacific Group, are turn around specialists that take struggling firms and fix their business processes to make them run better and raise the stock price by actually building a better company. There are a lot more of the for…

Your first example is very old school thinking. When a company 'craters' it's not like everyone gets off scott free. All of the people holding the debt, usually big, savvy banks, with the senior tranches of debt have gotten wise to this sort of behavior. And when I say they've gotten wise to it, I mean they got wise to it 20 years ago. In short, if you want to load it up with debt that the company will never pay back and give yourself a big dividend you first have to find someone to lend you that money. If it's obvious to you that that's a bad idea it's obvious to the banks as well.

Most exits in PE are either going public (in which case you have to convince the equity markets that the company is stable), selling to a strategic buyer (e.g., if Apple were to buy RAX from Apollo), or even selling to another PE firm which happens all of the time.

The point is that neither of these scenarios turn out well if you are levering a company up to an unsustainable capital structure.

Re: Apollo Global is buying Rackspace for $4.3B

#140

Post by ezequiel-garzon »

20years wrote: post #80
leesalminen wrote: post #52

Earlier quoted context omitted.

I'm in the same boat. Where are you moving to?

We have moved a lot of our stuff to AWS and plan to move 2 more sites that are on the RS dedicated server to AWS. 1 service in particular really does need a dedicated server and we plan to move that to a Hostnexus dedicated box. We have a couple of other boxes with Hostnexus that we have had for years. They are not as good as RS but they do have decent support especially for the price of the boxes (fraction of RS) ht…

How come this is an order of magnitude more expensive than European providers such as OVH and Hetzner? Are there "American equivalents" of OVH and Hetzner? European goods are generally pricier, not the other way around!
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