CSPs, Mergers and Acquisitions

Apollo Group Acquires Rackspace for $4.3 Billion


Apollo Group has acquired Rackspace Hosting (NYSE: RAX) for $4.3 billion, which will effectively take one of the world's largest managed cloud service providers private, the two companies announced minutes ago.

Rackspace has spent recent years pivoting away from being a pure cloud services provider and hosting provider. The company's OpenStack open cloud push largely fell on deaf ears, and competing head-on against Amazon Web Services and Microsoft Azure was too difficult. More recently, Rackspace has successfully introduced a range of managed services to help customers maintain their AWS and Azure workloads.

Still, the moves weren't enough to appease Wall Street, which wanted even faster growth from Rackspace.

Apollo Group, Rackspace Buyout Negotiations

Rumors about Apollo Group's plan to buy Rackspace have circulated for several weeks. The deal, valued at $4.3 billion, is expected to close in Q4. Shareholders will receive $32.00 per share. In connection with the transaction, funds managed by Searchlight Capital Partners, L.P. will make a strategic equity investment in the acquired company, Apollo said.

The $32.00 per share cash consideration represents a premium of 38% when compared to Rackspace's unaffected closing stock price on August 3, 2016, the last trading day prior to news reports speculating about a potential transaction, the companies said.

Under Apollo's ownership, Rackspace is expected to accelerate its push toward "multi-cloud" model management. Rackspace insiders also are expected to fiercely protect the company's "Racker" corporate culture, which is well known in and around the company's San Antonio headquarters, ChannelE2E believes.

Apollo Also Owns Presidio: Managed Hybrid Cloud Services

Apollo, by the way, also owns Presidio -- one of the world's most successful managed IT service providers for hybrid clouds. Presidio partners closely with Cisco, EMC and VMware, among other key companies. We're checking to see if there will be potential synergies between Rackspace and Presidio, though private equity firms often keep their portfolio companies completely separate from one another.

We're also checking to see how Apollo's buyout of Rackspace potentially impacts Rackspace's ownership stake in Cloud Technology Partners (CTP). Rackspace invested in CTP, a cloud consulting and migration firm, earlier this year.

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.