Service Provider Cloud

Is Cloud Provider Rackspace Going Private?

US cloud services provider Rackspace is on the verge of going private, with investment firm Apollo Global Management a leading candidate for the acquisition, according to reports.

Citing "people familiar with the matter," Reuters reported Friday that Apollo is negotiating to pay more than $3.5 billion. Rackspace announced two years ago that it was working with Morgan Stanley to "explore strategic alternatives" and "explored a sale several times" since then, Reuters reported.

The Wall Street Journal reported Thursday that one one or more unidentified private equity firms were in advanced talks to acquire Rackspace, and the deal might be reached this week (in other words, today).

"Apollo, a private equity and credit investment firm with $186 billion in assets, has traditionally invested in companies in the industrial, media, communications, consumer, retail, energy, services and healthcare sectors," Reuters says. However, it's branching out into tech, acquiring IT consulting company Presidio, last year.

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Founded in 1998, Rackspace pioneered the cloud, but has recently fought for customers in the shadow of much larger competitors, most notably Amazon Web Services Inc. and Microsoft Corp. (Nasdaq: MSFT) Azure. (See Amazon & Other 'Big 4' Cloud Providers Crushing Competitors.)

Rackspace has been a leader in developing and implementing OpenStack, contributing key source code to launch the project in partnership with NASA in 2010.

Rackspace had $2 billion in revenue last year. Its stock traded at $29.62, up 12%, on Friday morning.

Rackspace declined to comment. "We do not comment on rumors and speculation," a spokesperson said. Apollo Global Management has not responded to a request for comment.

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— Mitch Wagner, Follow me on TwitterVisit my LinkedIn profile, Editor, Light Reading Enterprise Cloud

kq4ym 8/18/2016 | 1:32:46 PM
Re: First mover disadvantage It's always a gamble whether to go private or not. If one thinks the buy can be made for less than the real value of the company or that the near term prospects indicate a huge growth factor is possible, go ahead. Otherwise stay where you are and invest in a more likely profit scenario, I would guess.
Mitch Wagner 8/10/2016 | 9:57:22 PM
Re: Privacy Please Yes, if a company needs to make a long-term investment in changing direction, going private can give them time to execute that Wall Street would be unwilling to provide.
Alison_ Diana 8/10/2016 | 12:14:38 PM
Privacy Please Having covered Dell quite extensively while writing about high performance computing, I'd say going private was one of the best steps that company made. In terms of aiming for and attaining long-term goals, not all businesses have boards with the apparent patience of those around the table at Google, Amazon, etc. Too many corporations have boards with short-term temperaments who look solely at this and the next quarters. Of course, that alone doesn't make or break a business. But if there are the right people + the right vision, then it certainly helps. 
Mitch Wagner 8/8/2016 | 12:22:42 PM
Re: First mover disadvantage Excellent points, brooks7. And the cloud providers developers started their careers in agile development, while telcos use rigid, waterfall techniques that are not conducive to cloud development. Telcos are now getting up to speed on agile.

Do you have a sense of how large the cloud market is, and how big a role service providers play? What is the role of telcos and other service providers in the cloud?
brooks7 8/5/2016 | 6:21:38 PM
Re: First mover disadvantage I think the thing you are missing about Amazon and Microsoft is that they have one thing in common...boatloads of software engineers.  It is why the other well capitalized group (Telcos) have fallen on their face in Cloud Provider business.  You need to have something that is yours.


Mitch Wagner 8/5/2016 | 1:51:29 PM
Re: First mover disadvantage Yeah, first to market often doesn't beat heavily capitalized and determined to win. 

First to market and ridiculed by the incumbents seems like a winning proposition. Neither Microsoft nor Amazon were taken seriously when they started doing business in desktop computing and e-commerce, respectively. Gave them time to build a head start on the competition. 
James_B_Crawshaw 8/5/2016 | 1:31:38 PM
First mover disadvantage This is a great example of how being first to market is no guarantee of success.

Even at $30 RAX is down over 60% from its 2013 peak though it is up from the 2008 IPO price of $12.5. 
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