Apollo Global Management Acquires Rackspace, Pins Hopes on Struggling Cloud Provider

Private equity firm (APO) has entered into a definitive agreement to purchase cloud hosting and computing provider Rackspace Hosting, Inc. (RAX), with plans to take the company private. The $4.13 billion acquisition will bring Rackspace into Apollo’s growing IT Services group, which includes such assets as Presidio.

Kris Blackmon, Head of Channel Communities

August 29, 2016

1 Min Read
Apollo Global Management Acquires Rackspace, Pins Hopes on Struggling Cloud Provider

Private equity firm Apollo Global Management (APO) has entered into a definitive agreement to purchase cloud hosting and computing provider Rackspace Hosting, Inc. (RAX), with plans to take the company private. The $4.13 billion acquisition will bring Rackspace into Apollo’s growing IT Services group, which includes such assets as Presidio.

The $32 per share transaction represents a 38 percent premium over Rackspace’s company share price before news of the potential deal began to circulate earlier this month. Searchlight Capital Partners is also making a strategic equity investment in the deal, scheduled to close in the last quarter of this year.

Rackspace, once a strong leader in public cloud, has struggled in recent years to compete with giants such as Amazon, Microsoft and Google. Amid an Infrastructure-as-a-Service (IaaS) field increasingly crowded by well-funded companies and specialized startups alike, Rackspace has pivoted to offer supplementary cloud services rather than holistic offerings which must compete with platforms such as AWS and Microsoft Azure.

The strategy has produced steady earnings, but it hasn’t been enough to reassure investors, who are more concerned with its inconsistent revenue performance, according to M&A advisor Marty Wolf of investment firm martinwolf.

“The rise of “hyperscale” cloud providers such as Amazon, Microsoft and Google has had a dual impact on Rackspace,” said Wolf. “[N]ot only has the company been unable to match its well-capitalized competitors’ infrastructure investments, it has been unable to establish a clear value proposition and attract new customers.”

The deal adds to a string of M&A activity in 2016 in the tech sector. Technology has so far accounted for more than $400 billion, or one-fifth, of total M&A deals so far this year.

 

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About the Author

Kris Blackmon

Head of Channel Communities, Zift Solutions

Kris Blackmon is head of channel communities at Zift Solutions. She previously worked as chief channel officer at JS Group, and as senior content director at Informa Tech and project director of the MSP 501er Community. Blackmon is chair of CompTIA's Channel Development Advisory Council and operates KB Consulting. You may follow her on LinkedIn and @zift on X.

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