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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

#151

Post by kiallmacinnes »

gaius wrote: post #128
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…

Typically, borrow the money to buy the company, then transfer the debt onto that company's own balance sheet, meaning they have taken control of a company effectively for $0. Then the asset stripping begins.

Honest question: if it's that easy, why isnt everyone doing it?

Re: Apollo Global is buying Rackspace for $4.3B

#152

Post by slavik81 »

dfriedmn wrote: post #145
frakr wrote: post #132

Earlier quoted context omitted.

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

That's actually a different firm called Apollo Group (which is mostly comprised of Phoenix and a small number of other things) – Apollo Global is a much larger private equity firm with a confusingly similar name

It appears that Apollo Global is part of a consortium that bought Apollo Education Group earlier this year [1]. Looking at the press releases, those appear to be the two Apollos in question. Though, I suppose you should give them some time to see what they'll do with it.

[1] http://www.streetinsider.com/Corporate+News/Apollo+Global+to...

Re: Apollo Global is buying Rackspace for $4.3B

#153

Post by charlesdm »

kiallmacinnes wrote: post #151
gaius wrote: post #128

Earlier quoted context omitted.

Typically, borrow the money to buy the company, then transfer the debt onto that company's own balance sheet, meaning they have taken control of a company effectively for $0. Then the asset stripping begins.

Honest question: if it's that easy, why isnt everyone doing it?

1. You need to find a lender willing to lend you most of the acquisition capital.

2. You also need someone to put up the initial equity capital.

3. You need to find a viable company to be acquired that won't crash immediately upon acquisition, and it can't be too expensive. Your first goal is to recover your equity investment. Everything after that is basically profit.

4. Frankly, 99.9% of people have ethical issues (you risk the jobs of 100s of people by overleveraging) with PE deals or don't have the skills and/or intelligence (managing the financial side + running/growing a business is hard) to be able to execute a deal like that.

If all you care about is making money, then private equity is probably one of the "easiest" ways to build wealth (for yourself, that is). At the end of the day, it's nothing more than buying a companies with a huge loan. There are some billionaire entrepreneurs who have used LBOs as their "empire building" tactic, i.e. Rupert Murdoch, John Malone, etc.

Also, check out Amaya Gaming. Classic LBO play done by an entrepreneur.

Re: Apollo Global is buying Rackspace for $4.3B

#154

Post by charlesdm »

ottodidakt wrote: post #130
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…

I hear that this financing model allows the PE firm to limit downside (to what they put down) while allowing for unlimited upside (since the equity is theirs). What's in it for the banks that finance most of it? Just the interest on unsecured loans? Aren't these interest rates typically worse than those on retail (house, credit-card, education) loans?

Debt exists in certain tranches, i.e. there will be low interest secured debt, and higher interest unsecured debt. Banks tend to only lend secured debt against assets and/or cashflow. Unsecured debt is often offered by hedge funds (i.e. 6-8-10% instead of 2-4-5%) and is paid down first.

Why do banks love PE deals? Easy: they make a ton of money off of these deals, with moderate risk. If the business goes under, they are first in line to be compensated. If they make 4% on a $500m loan, that's $20m a year.

Re: Apollo Global is buying Rackspace for $4.3B

#155

Post by kondro »

This is the wrong time to be in the datacentre business. Especially one that traditionally provides a high-touch, traditional bare-metal based model.

It probably doesn't make a dent in their revenue, but Xero is just completing their migration from Rackspace to AWS for reasons they don't articulate well.

Re: Apollo Global is buying Rackspace for $4.3B

#157

Post by taspeotis »

nullcipher wrote: post #144
pcurve wrote: post #70

Earlier quoted context omitted.

ditto. customer in 2001-2003. Definitely 50% more than competitors back then for just a basic dedicated unix box. But founder and chief evangelist paid us a visit at our dinky little office in Manhattan, so that was a treat. :)

2011-2013 surely :-)

https://en.wikipedia.org/wiki/Rackspace

    Rackspace was launched in October 1998 with Richard Yoo as its CEO

Re: Apollo Global is buying Rackspace for $4.3B

#158

Post by gaius »

kiallmacinnes wrote: post #151
gaius wrote: post #128

Earlier quoted context omitted.

Typically, borrow the money to buy the company, then transfer the debt onto that company's own balance sheet, meaning they have taken control of a company effectively for $0. Then the asset stripping begins.

Honest question: if it's that easy, why isnt everyone doing it?

It's one of those things that's easy if you're of the right class and have the right contacts. Another example would be Holmes raising billions for Theranos through people who were all friends of her family. You need to know the right people to stake you the initial sum (and who will collect their fee for doing so). A few years at a big bank, then Harvard Business School should do it. Oh and also you need to be completely amoral.

Re: Apollo Global is buying Rackspace for $4.3B

#159

Post by robbyt »

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.

Thing is, their product has been inferior for years! You wouldn't believe how bad it used to be. The current state of rackspace cloud is great, compared to how it was in 2010.
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