Apollo Global is buying Rackspace for $4.3B

I guess it was only a matter of time before they got bought out. It&#x27;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!<p>It&#x27;s never great for a companies employee&#x27;s to be taken over by a private equity firm, if you actually find someone whose had a good experience then please let me know, but given that this is a 38% premium over what RAX was trading at when the deal leaked on august 3rd, this is almost best case for rack space employee&#x27;s and given that this is an all cash transaction they should get some liquidity out of the deal!!<p>Given that the RAX board unanimously approved the deal, I&#x27;m going to guess this is going through.<p>Often when a company is brought private by a PE firm they&#x27;ll combine it with other portfolio companies before spinning it back out. I don&#x27;t see any relevant companies in Apollo&#x27;s portfolio that could be joined to RAX.<p>If you are wondering who in wall street makes money on these types of deal, its the usual suspects. Everyone wets their beak in take over transactions:)<p>- Financing provided by Citi, Deutsche, Barclays, RBC;<p>- Goldman advised RAX, Morgan Stanley also provided services in connection w&#x2F; deal; Citi, Deutsche, Barclays, RBC advised Apollo

&gt; $32 per-share-offer represents a premium of 6 percent to Rackspace&#x27;s Thursday closing price.<p>Quite a fall from almost $80 in 2013.<p>I was a satisfied Rackspace customer back around 2001 when I had a web hosting business, but it was truly a premium service - very expensive compared to competitors. We ended up going with our own bare metal eventually. Then, when everything moved to the cloud, Rackspace seemed a little behind the times and Heroku and AWS got my business.

Over the past six months I&#x27;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&#x27;re migrating away but this doesn&#x27;t surprise me.

I still have a couple of dedicated servers with Rackspace. Been with them for over 10 years and am sad to see this. They truly did have the best support and were an amazing partner to my business in the earlier years.<p>I knew this was coming and have moved a lot of our stuff off in preparation. Partly because of the unknown but also partly because their support has diminished over the past 2 years.<p>I was kind of hoping Amazon would acquire them. I don&#x27;t have much faith with the purchase being a PE firm. Time now to move the rest of our stuff off.

Rackspace&#x27;s problem is this: they are not really a hosting business. They are a Managed services business. They USED to be a hosting business, but it turned out that their real value add was in running clouds for companies that couldn&#x27;t do it themselves. My guess is that the real reason they sought this is that the hosting business is not going to grow, and they don&#x27;t want to invest in it. Instead, they are going to transition into becoming a managed services provider for Openstack private clouds (customer premises or equinix), Azure and AzureStack, and AWS.<p>Many enterprises are not making the transition to Cloud cleanly, and Rackspace is positioning themselves as the premier services provider to deploy, manage, and monitor cloud usage for many organizations.

Rackspace has been looking for a buyer for a while. I suspect that their business is not in terribly good shape.<p>They even started consulting on AWS deployments a while back: &quot;Need some help moving your servers over to AWS? We&#x27;re here to help!&quot;

I&#x27;m praying that Mailgun doesn&#x27;t get affected by this, they&#x27;re absolutely awesome for the small shops like me (and easy to integrate).

Interesting. In contrast just about a year ago Verio&#x27;s web hosting assets were sold to EIG for a mere $36 million. Both companies were founded around the same time ~ 1996, and at some point at the top of the dot-com boom were the two dominant dedicated server providers out there.

I understand that publicly traded companies are one cornerstone of our economy.<p>That said, it&#x27;s depressing to see companies get bought and sold just to move money around, and the people that work in those jobs completely ignored, or just seen as pawns to manipulate for nothing more than the bottom line.<p>To me, when a company goes from private to public, it&#x27;s not something to celebrate in the long-term.<p>The company&#x27;s focus inevitably seems to go from doing&#x2F;creating something innovative, to maximizing shareholder value at <i>any</i> expense.<p>Rackspace was awesome. RIP Rackspace. (I don&#x27;t know this for a fact, of course... but as others have surmised already, this will likely be just another pump and dump.)

I&#x27;ve been a loyal rackspace customer since 2011. I really hope that if this is indeed true, as I will wait until Rackspace officially announces it, that Appollo doesn&#x27;t destroy the good things Rackspace has going for it. Mainly their wonderful customer support.

So I think people are missing some points around this deal.<p>Investment firms like hosting companies for two reasons:<p>1) They give predictable revenue, which is a great thing. Even if the profit rate isn&#x27;t amazing, the revenue gives a lot of cash-flow.<p>2) They (often) own large infrastructure asserts (data centers), which can be depreciated and used as a tax write-off.<p>Not saying that they won&#x27;t want to take costs out of the business too, but the motivations for a purchase like this aren&#x27;t as simple as one might think.

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

I&#x27;m sure Rackspace is a great service for established companies and startups but for the rest they were always too expensive. I never felt like the premium paid made a difference.

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

Their service is very expensive compared to Google, AWS and the rest. I wonder how they&#x27;ve managed to survive on their own for so long

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?

I&#x27;m only missing one thing out of your comments -- what will change for someone who spends over $10,000 per month across US, UK and HK on servers and hosting.<p>Is it time to move forward?? Will my hosting be affected??

As someone who&#x27;s first VPS was from Slicehost: Oh, not this again.

This is the wrong time to be in the datacentre business. Especially one that traditionally provides a high-touch, traditional bare-metal based model.<p>It probably doesn&#x27;t make a dent in their revenue, but Xero is just completing their migration from Rackspace to AWS for reasons they don&#x27;t articulate well.

So what other BIG Cloud Hosting Companies are there left?<p>Google, Microsoft, Amazon, IBM ( SoftLayer) OVH, AliYun.

I wonder if this will mean an influx of capital in the Austin&#x2F;SA area.

Is the playbook &quot;Financial engineering, and decrease support for existing customers&quot;? (Financial engineering meaning load up on debt, where interest payments can be written down)

Interesting year so far for PE M&amp;A in SaaS companies<p>Vista - Cvent $1.65B<p>Vista - Marketo $1.80B<p>Vista - Ping $600M<p>Apollo - Rackspace $4.3B (moreso IaaS)<p>Thoma Bravo - Qlik $3.0B (debatable SaaS)

RIP.<p>SoftLayer has been growing substantially after the IBM acquisition. This space is pretty interesting.

Wonder what this means for mailgun. They have wonderful customer support.

Is it too late to sell it to Yahoo instead?

Are Apollo likely to make money from it?