Apollo Global is buying Rackspace for $4.3B • Hacker News Board

Re: Apollo Global is buying Rackspace for $4.3B

#41

Post by jdubs » Fri, Aug 26, 2016, 2:58 PM UTC

caminante wrote: post #6

jdpedrie wrote: post #2

Has 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% RAX: FY15 Revenues: $2.0 billion CAGR (FY13-FY15): 14% FY15 Op Margin: 10%

They're targeting different segments on different business requirements. Their numbers will never be comparable.

Re: Apollo Global is buying Rackspace for $4.3B

#42

Post by frogfuzion » Fri, Aug 26, 2016, 3:03 PM UTC

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.

The easiest and quickest way for the Private Equity company to make your business more profitable is through layoffs. They eventually want to sell the company to make a profit for their investors. In many cases this requires layoffs.

Re: Apollo Global is buying Rackspace for $4.3B

#43

Post by raverbashing » Fri, Aug 26, 2016, 3:03 PM UTC

cmrdporcupine wrote: post #30

raverbashing wrote: post #23

Earlier quoted context omitted.

Are you sure? AWS was one of the most expensive ones, Rackspace was cheaper

Back in 2009/2010 when I was looking into it AWS was half the price for a roughly equivalent instance.

Looking at their site it seems now what they do is resell AWS/Azure/Google offers, which is weird (and dedicated servers, which was what they always did)

Re: Apollo Global is buying Rackspace for $4.3B

#44

Post by kolbe » Fri, Aug 26, 2016, 3:05 PM UTC

cpach wrote: post #34

kolbe wrote: post #13

Nice. So in a few years, there will be one less competitor in this space.

What do you mean?

I think this is a smash-and-grab deal. They'll write down RAX's assets, then sell them while calling the difference between their sales price and the written down value "profits." They'll dish themselves out a dividend from the sales, maybe issue some more debt to buy additional infrastructure, then IPO it knowing that blackrock and fidelity and pension funds only look at earnings when they value companies (which they manufactured with their accounting gimmick), and flip the remaining shell of a company on to them for a hefty return.

What's left will collapse under the debt load that Apollo stuck it with.

Re: Apollo Global is buying Rackspace for $4.3B

#45

Post by monkmartinez » Fri, Aug 26, 2016, 3:06 PM UTC

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.

It doesn't seem so hard to figure out. The problem is the company is now just part of a portfolio that needs to perform to a certain level. The level of uncertainty with respect to Rackspace just increased 1000% both internally and externally. To me, private equity is a vote of no-confidence.

Personally, I fall into the group that thinks private equity is probably bad for the economy in general.

Re: Apollo Global is buying Rackspace for $4.3B

#46

Post by nowbacktowork » Fri, Aug 26, 2016, 3:07 PM UTC

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…

I believe the rumor is they are going to buy hpe after their spin off/merge with CSC. There might be an opportunity there.

Re: Apollo Global is buying Rackspace for $4.3B

#47

Post by schnevets » Fri, Aug 26, 2016, 3:08 PM UTC

inputcoffee wrote: post #17

I like to look at comparisons like this: That is about 1 Yahoo in 2016 Or about 3 youTubes in 2006 Or 1.5 Lucasfilms in 2012 Or 0.2 Whatsapps in 2014 EDIT: Whatsapps number corrected, thanks.

1 Marvel. Marvel is always my measurement for these acquisitions. It's always fun to compare acquisitions to a cultural icon with +50 years of history.

Moreso when the company is a mobile gaming company, social media site, or other "time-waster"

Re: Apollo Global is buying Rackspace for $4.3B

#48

Post by monkmartinez » Fri, Aug 26, 2016, 3:11 PM UTC

kolbe wrote: post #44

cpach wrote: post #34

Earlier quoted context omitted.

What do you mean?

I think this is a smash-and-grab deal. They'll write down RAX's assets, then sell them while calling the difference between their sales price and the written down value "profits." They'll dish themselves out a dividend from the sales, maybe issue some more debt to buy additional infrastructure, then IPO it knowing that blackrock and fidelity and pension funds only look at earnings when they value companies (which the…

That is dark and I like it. Seems to be what everyone is doing these days, just manipulating the books to make things look good before offloading to the next sucker.

Re: Apollo Global is buying Rackspace for $4.3B

#49

Post by tedmiston » Fri, Aug 26, 2016, 3:13 PM UTC

inputcoffee wrote: post #17

I like to look at comparisons like this: That is about 1 Yahoo in 2016 Or about 3 youTubes in 2006 Or 1.5 Lucasfilms in 2012 Or 0.2 Whatsapps in 2014 EDIT: Whatsapps number corrected, thanks.

If you will price on valuations: 1 Rackspace == 0.2 Snapchats per $22.7B valuation in May 2016.

Re: Apollo Global is buying Rackspace for $4.3B

#50

Post by dave_sullivan » Fri, Aug 26, 2016, 3:19 PM UTC

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.

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, and all/most available company cashflow is diverted to paying off that loan. The ideal company is one with reliable cashflows and access to a growing market (of which I'd say a large cloud infrastructure provider fits the profile).

To improve cashflow: pay fewer people less, convert assets to cash, and/or make more money from your core business. Usually a mix of the three.

From an organizational standpoint, you can think of it like Rackspace just took out a very large (maybe subprime) mortgage on the company and some new people are going to try to make sure that doesn't turn out to be a horrible bet, first for the investors, then for the company.