Mergers and Acquisitions

Report: Rackspace Acquired by Private Equity?


Rackspace (RAX) is in advanced talks to be sold to a private-equity firm, and deal could be announced this week, according to Dow Jones. Shares in the cloud and managed services provider (MSP) were halted about 10 minutes before U.S. markets closed today.

Updated Aug. 5, 11:55 a.m. ET: Potential Rackspace buyer could be Apollo Global Management, owner of Presidio.

Rackspace's current valuation is about $3 billion but a company sale could fetch around $4 billion, The Wall Street Journal estimated. Rackspace shares spiked about 13 percent on the M&A rumors.

Generally speaking, Rackspace has failed to keep pace with the growth of Amazon Web Services (AWS) and Microsoft Azure. Instead of competing head-on against those giants, Rackspace shifted focus in recent months, focusing heavily on managed services for AWS and Azure.

As of February 2016, Rackspace was managing AWS workloads for about 100 customers. But that success hasn't been enough to offset Wall Street concerns about the company's growth rates.

Cloud Service Providers Forced to Pivot

Rackspace's potential sale comes as multiple data center providers consider exiting the market. Both Verizon and CenturyLink. for instance, are trying to sell off their physical data center businesses by Q3 or Q4 2016 -- though both companies say they'll only sell at a valuation that makes sense for shareholders.

Ironically, former CenturyLink Channel Chief Blake Wetzel recently exited the company to join Rackspace to re-invigorate that company's partner program.

Rackspace had early success in the channel under the former leadership of Christopher Rajiah, but Rajiah ultimately exited and the hosting provider's partner program was adrift for quite some time. Rajiah, by the way, is now driving channel success at Equinix, another cloud and colocation provider.

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.