Friday, August 26, 2016

Private Equity Firm Buys Rackspace for $4.3 Billion

Posted By on Fri, Aug 26, 2016 at 10:38 AM

After weeks of speculation, Rackspace announced that a private investment firm is buying the San Antonio tech giant for $4.3 billion.

Apollo Global Management acquired the cloud company for $32 a share. When the transaction is complete, Rackspace should become a privately held company. Graham Weston, co-founder and chairman of the board at Rackspace, said he is confident that as a private company Rackspace will be able to capitalize on its cloud services business. "Our board, with the assistance of independent advisors, determined that this transaction, upon closing, will deliver immediate, significant and certain cash value to our stockholders," Weston said in a press announcement. "We are also excited that this transaction will provide Rackspace with more flexibility to manage the business for long-term growth and enhance our product offerings."

David Sambur, a partner at Apollo, says the investment firm looks forward to working with Rackspace to help advance its strategy and continue down a path of innovation. "We are tremendously excited about the opportunity for our managed funds to acquire Rackspace,” Sambur said. “We have great respect for the company’s talented employees and their commitment to deliver expertise and exceptional service for the world’s leading cloud platforms."

The transaction is expected to be complete by the end of the year and is subject to antitrust waiting periods in the U.S., the European Union and Israel, along with stockholder approval.

Apollo has been known to buy troubled companies and then turn them around for a giant profit. Last year, it sold Hostess Brand for $1.7 billion after purchasing the floundering company for just $410 million. Hostess, the maker of the much beloved Twinkies, was financially struggling because of multiple union deals it had with its employees. When Apollo bought the company, it fired 95 percent of Hostess' unionized workforce. 

As for the Rackspace sale, it's clearly a different situation than the quagmire Hostess was in when it was bought. 

To better compete in the rapidly changing tech atmosphere, Rackspace has been shifting its business model toward concentrating on cloud services rather than data-center hosting. That way, it could help support, rather than compete with tech behemoths Amazon and Microsoft. During its last earnings call with investors, officials said the company has seen growth in Amazon and Microsoft customers using Rackspace's cloud management services. And on August 9, Rackspace announced that it was selling its web-hosting business Cloud Sites to Liquid Web, a Michigan-based company. In January, it sold its web backup service Jungle Disk. 



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