Cloud player Rackspace goes private in US$4.3B deal

A private equity firm has signed an agreement to buy major cloud player Rackspace for US$4.3 billion.

A private equity firm has signed an agreement to buy major cloud player Rackspace for US$4.3 billion.

Rackspace announced today that Apollo Global Management, a U.S.-based investment manager, will acquire the company in a deal that will give Rackspace shareholders $32 per share.

"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," said Graham Weston, co-founder and chairman of Rackspace, in a statement. "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."

The acquisition is expected to close in the fourth quarter.

Rackspace, based in Texas, has been known as a significant player in the cloud market, competing in the same company as Alphabet's Google, Microsoft and AWS. It is also known as a web hosting provider.

However, Rackspace has focused on virtual private data centers, which are an extension of a private data center, while the cloud market is leaning heavily toward the pay-as-you-go, consumption-based pricing of the public cloud.

That change has been tough on Rackspace. In May 2015, the company's stock was over $50 per share. Today it's just over $30.

By being acquired, Rackspace will transition from a public to a private company that no longer will have stockholders, who likely would be unhappy with the costs and tumult that transitioning the company to a public cloud provider would entail.

"Rackspace has had a big brand and now they need to go through a transition," said Zeus Kerravala, an analyst with ZK Research. "Going private can help companies make necessary transitions without worrying about quarterly numbers."

Taylor Rhodes, president and CEO of Rackspace, said in a blog post that the acquisition will help the company grow.

"In weighing these options, the board was mindful that Rackspace faces a big opportunity as the early leader in the fast-growing managed cloud services industry," wrote Rhodes, who will continue to head the company under the purchase agreement. "To seize that opportunity, we want greater flexibility to invest our resources in additional multi-cloud capabilities that we expect to result in long-term growth. This transformation is likely to impact our revenue and margins for multiple quarters."

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