Rackspace, a cloud service provider, has recently announced that Apollo Global Management LLC will take the company private in a $4.3 billion ($32 per share) deal. Searchlight Capital Partners will also make an equity investment in Rackspace. The acquisition is expected to close in the fourth quarter.
This deal may mark a time of growth for Rackspace, who has struggled to compete against big name public cloud service providers, such as Amazon Web Services and Microsoft, in the past. In 2008, Rackspace went public and experienced massive amounts of growth due to the early many companies’ transition from on-premise data centers to utilization of cloud services. However, Amazon Web Services ended this run of success. Large companies such as Amazon and Microsoft can offer better prices without hurting margins because of the larger scale they operate on. So when Amazon stepped on the cloud computing scene in 2013, Rackspace took a big hit, as AWS lowered its prices seven times throughout the year. Rackspace simply did not have the means to compete with companies such as Google, which poured billions a year into maintaining and building new data centers. So, Rackspace became a middle man.
Amid the struggles within the cloud sector, Rackspace now advises companies on how to move their data to bigger companies such as AWS and Microsoft Azure. In addition, Rackspace hired Morgan Stanley in 2014 to explore business alternatives. The deal is aimed to increase Rackspace’s long term growth with expanding its offerings.
Apollo’s advisers for the deal are Citigroup Inc., Deutsche Bank AG, Barclays Plc and RBC Capital Markets, while Rackspace’s is Goldman Sachs Group Inc.
Founded in 1998, San Antonio, Texas based Rackspace currently has over 300,000 customers in over 120 different countries. Rackspace has offered enterprise class hosting solutions for over 15 years. In 2009, Rackspace partnered with NASA to found OpenStack and later launched its public cloud platform on OpenStack in 2012.
Graham Weston, chairman and co-founder of Rackspace: “This transaction will provide Rackspace with more flexibility to manage the business for long-term growth and enhance our product offerings.”