13 ms·

Apollo Global is buying Rackspace for $4.3B

339 points by notmyname 10y ago

20years 10y ago
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. 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. I was kind of hoping Amazon would acquire them. I don't have much faith with the purchase being a PE firm. Time now to move the rest of our stuff off.
- leesalminen 10y ago
  I'm in the same boat. Where are you moving to?
  - 20years 10y ago
    We have moved a lot of our stuff to AWS and plan to move 2 more sites that are on the RS dedicated server to AWS. 1 service in particular really does need a dedicated server and we plan to move that to a Hostnexus dedicated box. We have a couple of other boxes with Hostnexus that we have had for years. They are not as good as RS but they do have decent support especially for the price of the boxes (fraction of RS) http://www.hostnexus.com/solutions/dedicated-hosting.php http://www.hostnexus.com/solutions/dedicated-hosting.php
    - ezequiel-garzon 10y ago
      How come this is an order of magnitude more expensive than European providers such as OVH and Hetzner? Are there "American equivalents" of OVH and Hetzner? European goods are generally pricier, not the other way around!
  - joshmn 10y ago
    If you're looking for premium, I'd check out LiquidWeb without hesitation. LimeStone Networks is also up there. Not affiliated with either, just really knowledgable of the industry.
  - modoc 10y ago
    I would recommend that you look at SoftLayer, or if you'd like to avoid someone part of a larger company (IBM), SingleHop has also been awesome to work with.
jdpedrie 10y ago
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?
- roymurdock 10y ago
  Apollo is a private equity firm, so they are most likely acquiring Rackspace because they see fat they can trim (read: laying people off, outsourcing labor, tax optimization) off a decently competitive company that they can possibly take public or sell in 5-10 years. It's not so much about competing with Amazon, Google, etc. or advancing the state of the technology as much as making a bet that the brand is currently undervalued and that conditions in the cloud computing market will allow for a profitable exit in the medium term. For examples of Apollo bets that have gone wrong see its LBO of Harrah's (basically bankrupt) or Linens 'n Things (bankrupt).
  - pm90 10y ago
    (Disclaimer: former employee of Rackspace) That is exactly how I read it. While Rackspace has been doing pretty well, its just not growing as fast as its competition and Wall Street in concerned. It is a big shame though. Rackspace is one of the few Texas-born companies that managed to strike it big and still have a very egalitarian culture. They have a very interesting culture and I wish it was something that could go on; a lot of my former coworkers absolutely love that environment. But it doesn't look like it will last for much longer.
    - jdubs 10y ago
      They've done amazing things for the community. I can only hope that Apollo group continues the local outreach!
    - charlesdm 10y ago
      For a successful LBO, growth is largely irrelevant. What is relevant however, is that you can protect your existing market share. If you can buy a company for $1bn with $800m in debt and pay that down, and sell it for $1bn again 5 or 10 years down the line, you just made a cool $800m. If you can double the net profit, you'll be able to sell it for $2bn, etc.
gtrubetskoy 10y ago
Interesting. In contrast just about a year ago Verio'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.
- scurvy 10y ago
  Verio's big play was in the transit business; they ultimately became NTT America.
rkrzr 10y ago
Rackspace has been looking for a buyer for a while. I suspect that their business is not in terribly good shape. They even started consulting on AWS deployments a while back: "Need some help moving your servers over to AWS? We're here to help!"
- ghshephard 10y ago
  Re: "Business not in terribly good shape" - there are 4.3 Billion reasons to suggest otherwise. This isn't the type of business that gets purchased without a lot of due diligence, and, we're not really in much of a tech bubble right now - so I thinks it's reasonable to asses that the underlying revenue/profit of Rackspace was sufficient to justify the (impressive) valuation.
  - kgwgk 10y ago
    This impressive (?) valuation is not so impressive compared to what it used to be. Fun fact: any current shareholder that bought the stock between June 2009 and August 2015 would have done better buying a S&P 500 tracker.
  - jasode 10y ago
    >Re: "Business not in terribly good shape" - there are 4.3 Billion reasons to suggest otherwise. I believe the "not terribly good shape" is a measurement that's _relative_ to other competitors in the cloud infrastructure market. Rackspace's yearly revenues ($2 billion) have gone nearly flat[1]. On the other hand, Amazon's AWS has seen so much growth[2] that they now pull more revenue per quarter ($2.5 billion) than Rackspace does for the entire year. Back in the early 2000s -- before AWS hit the scene, Rackspace hosting was attracting customers with excellent datacenter uptime and "fanatical support"[3]. Those 2 factors are not meaningful enough to the cloud subscribers today which is why Rackspace tried various strategies such as promoting OpenStack (hey don't be locked into proprietary AWS!) and then eventually "consulting services" to help customers use AWS. Neither of those initiatives really moved the needle. I'm currently a Rackspace customer spending $120 a year for them to host my email but customers like me are part of a dying source of revenue. (Everybody can use GMail for free!). Rackspace is "mature" instead of being "hot growth" which often translates to "not doing too well". [1]http://www.marketwatch.com/investing/stock/rax/financials http://www.marketwatch.com/investing/stock/rax/financials [2]http://www.statista.com/statistics/250520/forecast-of-amazon-web-services-revenue/ http://www.statista.com/statistics/250520/forecast-of-amazon... [3]https://www.rackspace.com/en-us/dedicated-servers/promise https://www.rackspace.com/en-us/dedicated-servers/promise
colinbartlett 10y ago
> $32 per-share-offer represents a premium of 6 percent to Rackspace's Thursday closing price. Quite a fall from almost $80 in 2013. 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.
- pcurve 10y ago
  ditto. customer in 2001-2003. Definitely 50% more than competitors back then for just a basic dedicated unix box. But founder and chief evangelist paid us a visit at our dinky little office in Manhattan, so that was a treat. :)
  - nullcipher 10y ago
    2011-2013 surely :-)
    - taspeotis 10y ago
      https://en.wikipedia.org/wiki/Rackspace https://en.wikipedia.org/wiki/Rackspace Rackspace was launched in October 1998 with Richard Yoo as its CEO
chollida1 10y ago
I guess it was only a matter of time before they got bought out. It'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! It's never great for a companies employee'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's and given that this is an all cash transaction they should get some liquidity out of the deal!! Given that the RAX board unanimously approved the deal, I'm going to guess this is going through. Often when a company is brought private by a PE firm they'll combine it with other portfolio companies before spinning it back out. I don't see any relevant companies in Apollo's portfolio that could be joined to RAX. 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:) - Financing provided by Citi, Deutsche, Barclays, RBC; - Goldman advised RAX, Morgan Stanley also provided services in connection w/ deal; Citi, Deutsche, Barclays, RBC advised Apollo
- calgoo 10y ago
  I work for a relatively big European Network Provider and hoster who got privatized last year. Its not all horrible, but there is a lot of BS going around all the time. The worst are the rumors. You try not to listen to them, but when you are not sure if you have a job in 3 months, and you have spent at least a year more less in the same place, it does get to you. The word from above normally talks a lot of cost cutting and Sales! Sales! Sales!, which makes everyone else who is not part of Sales feel even more left out, as if their jobs are not important. When people start saying things like: "I don't care, but just tell me if I have a job or not" things are bad. The job market is still bad here in Spain, so a good paying job is hard to get these days. That means a lot of people stick around just for the financials. I have found some small personal opportunities as well, such as being able to work more from home, making changes in my area regarding things such as legacy products, but anything that costs money is normally out of the question.
  - Ecio78 10y ago
colinramsay 10y ago
Over the past six months I'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're migrating away but this doesn't surprise me.
- evanscottgray 10y ago
  what was the use case when they wanted you to have a load balancer for a single server..?
  - alanpost 10y ago
    I was told it was to avoid changing my DNS when I spun up a new server. With the load balancer being $50/month; that was the pitch that put me off Rackspace.
    - leesalminen 10y ago
      The LB itself (in IAD) is $10.95/month + traffic.
    - colinramsay 10y ago
      This was exactly it.
  - crucialfelix 10y ago
    I've gotten the same recommendation from them. I complained because they pulled the network connection on the drive connected to the database and completely torched the drive. They were like: well maybe you should consider running multiple database machines with replication so you can survive the next time we screw things up.
    - aianus 10y ago
      This is true for all VPS hosting. They're cheap because they're commodity hardware that sometimes fails.
kolbe 10y ago
Nice. So in a few years, there will be one less competitor in this space.
- cpach 10y ago
  What do you mean?
  - adventured 10y ago
    That's a prediction, I believe, that Apollo will run Rackspace into the ground or perhaps just accelerate their demise in the confrontation with the big three competitors.
  - kolbe 10y ago
    I think this is a smash-and-grab deal. They'll write down RAX's assets, then sell them while calling the difference between their sales price and the written down value "profits." They'll dish themselves out a dividend from the sales, maybe issue some more debt to buy additional infrastructure, then IPO it knowing that blackrock and fidelity and pension funds only look at earnings when they value companies (which they manufactured with their accounting gimmick), and flip the remaining shell of a company on to them for a hefty return. What's left will collapse under the debt load that Apollo stuck it with.
    - monkmartinez 10y ago
      That is dark and I like it. Seems to be what everyone is doing these days, just manipulating the books to make things look good before offloading to the next sucker.
    - shostack 10y ago
      Surely analysts at the companies you mentioned are wise to this and factor in the likelihood of this happening, no?
mkj 10y ago
Are Apollo likely to make money from it?
- samfisher83 10y ago
  PE companies usually do. They will just layoff a bunch of people cut salaries and probably saddle it with debt and get as much cash flow they can from the company.
  - slantedview 10y ago
    ...and that's if things go as planned, where the result will be a smoldering mess of mediocrity.
  - bluetwo 10y ago
    Layoff the people with know-how, but also hire a bunch of salespeople with lucrative commission plans.
    - kregasaurusrex 10y ago
      Primarily this. PE firms tend to do a poor job at putting people in charge who know a company's full stack operations, and tend to underpay new non-sales hires which results in a net loss of talent for the company. Do this too often and you become a stagnant company that can't draw in new customers.
  - deleted 10y ago
    [deleted]
spriggan3 10y ago
I'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.
inputcoffee 10y ago
I like to look at comparisons like this: That is about 1 Yahoo in 2016 Or about 3 youTubes in 2006 Or 1.5 Lucasfilms in 2012 Or 0.2 Whatsapps in 2014 EDIT: Whatsapps number corrected, thanks.
- tsunamifury 10y ago
  0.2 Whatsapps
- schnevets 10y ago
  1 Marvel. Marvel is always my measurement for these acquisitions. It's always fun to compare acquisitions to a cultural icon with +50 years of history. Moreso when the company is a mobile gaming company, social media site, or other "time-waster"
  - inputcoffee 10y ago
    Yeah, I refer to Lucasfilms for almost exactly the same reason.
- tedmiston 10y ago
  If you will price on valuations: 1 Rackspace == 0.2 Snapchats per $22.7B valuation in May 2016.
thedlade 10y ago
Their service is very expensive compared to Google, AWS and the rest. I wonder how they've managed to survive on their own for so long
- raverbashing 10y ago
  Are you sure? AWS was one of the most expensive ones, Rackspace was cheaper
  - cmrdporcupine 10y ago
    Back in 2009/2010 when I was looking into it AWS was half the price for a roughly equivalent instance.
    - dagw 10y ago
      Did you run any benchmarks? Because I was looking at both during the same timeframe and Rackspace offered about 20-30% more 'operations'/dollar in our case.
    - raverbashing 10y ago
      Looking at their site it seems now what they do is resell AWS/Azure/Google offers, which is weird (and dedicated servers, which was what they always did)
- brightball 10y ago
  Great customer service.
  - arethuza 10y ago
    Shockingly bad pre-sales though - in my last job I tried to engage with them on the hosting for a large scale ERP project for a multinational and they were pretty reluctant to get involved even though they advertised that they were targeting that niche and claimed expertise in the ERP application.
laveur 10y ago
I'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't destroy the good things Rackspace has going for it. Mainly their wonderful customer support.
mbesto 10y ago
Interesting year so far for PE M&A in SaaS companies Vista - Cvent $1.65B Vista - Marketo $1.80B Vista - Ping $600M Apollo - Rackspace $4.3B (moreso IaaS) Thoma Bravo - Qlik $3.0B (debatable SaaS)
- frik 10y ago
  Thoma Bravo has then * Qlik (BI) * Riverbed (APM, app & network analytics) * Dynatrace (APM, app & network analytics) * Compuware (mainframe maintenance, Dynatrace was a business unit of Compuware) https://thomabravo.com/portfolio/all/current/ https://thomabravo.com/portfolio/all/current/ What does Thoma Bravo do with two old-school APM companies that barely provide a modern cloud service, a BI that barely provide a cloud service and a stone age relict? Will the merge the company assets and lay-off some "fat"? Or wait until IBM or Microsoft wants to buy one of their companies?
jszymborski 10y ago
I'm praying that Mailgun doesn't get affected by this, they're absolutely awesome for the small shops like me (and easy to integrate).
- 20years 10y ago
  Oh Yikes, totally forgot Mailgun is owned by RS. I have a few things using the Mailgun API too. I am hesitant to move to Sendgrid with what happened a couple of weeks ago and how they handled the outrage. At this point, I may just setup & manage my own box for email again. It is a real PITA but I just don't have a lot of faith in these 3rd party API's anymore.
  - jszymborski 10y ago
    There's always Amazon SES when looking for cheap, low-volume transactional email, but it's always a headache to setup.
    - 20years 10y ago
      Used SES in the past. Poor delivery and they are super strict especially once you start sending volume.
- jordanlev 10y ago
  Just went through this process with the Mandrill debacle earlier this year. I've found SendGrid to be on par with Mailgun (with a less wonky admin dashboard too). Both have comparable 10k~12k free sends per month. If you're using the SMTP gateway instead of direct API integration (which is the only way I'd do it these days, after dealing with a bunch of sites that were tied to Mandrill's API), then there's not really much that needs to happen for the switch.
  - Sir_Cmpwn 10y ago
    I just switched to running my software's email from my personal mail server when Mandrill died. Setting up your own mail server is a pain in the ass but it has paid off 100x imo.
nl 10y ago
So I think people are missing some points around this deal. Investment firms like hosting companies for two reasons: 1) They give predictable revenue, which is a great thing. Even if the profit rate isn't amazing, the revenue gives a lot of cash-flow. 2) They (often) own large infrastructure asserts (data centers), which can be depreciated and used as a tax write-off. Not saying that they won't want to take costs out of the business too, but the motivations for a purchase like this aren't as simple as one might think.
joering2 10y ago
I'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. Is it time to move forward?? Will my hosting be affected??
- cannonpr 10y ago
  If you have a stable codebase and infrastructure you can probably still keep using them, if you rely on their technical services heavily I would start looking around. I expect most of their good people won't be there for much longer. In other words the services they provide you with will likely rapidly degrade.
devin481 10y ago
WATCH MOVIE FULL HD Rome / PS3 Gaming https://www.youtube.com/watch?v=x-ZjPtVBtRY https://www.youtube.com/watch?v=x-ZjPtVBtRY
keenerd 10y ago
As someone who's first VPS was from Slicehost: Oh, not this again.
mathattack 10y ago
Is the playbook "Financial engineering, and decrease support for existing customers"? (Financial engineering meaning load up on debt, where interest payments can be written down)
clavalle 10y ago
I wonder if this will mean an influx of capital in the Austin/SA area.
- avelis 10y ago
  I was wondering this myself.
akulbe 10y ago
I understand that publicly traded companies are one cornerstone of our economy. That said, it'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. To me, when a company goes from private to public, it's not something to celebrate in the long-term. The company's focus inevitably seems to go from doing/creating something innovative, to maximizing shareholder value at any expense. Rackspace was awesome. RIP Rackspace. (I don't know this for a fact, of course... but as others have surmised already, this will likely be just another pump and dump.)
- akulbe 10y ago
  When I think of companies "doing it right", I think of the ones who choose to stay private and retain control. Slow but methodical growth. Basecamp. Dyson. Cargill. Patagonia. (to name a few)
abakker 10y ago
Rackspace'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'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'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. 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.
- abakker 10y ago
  Shameless self plug - http://insights.isg-one.com/rackspace-sold-toward-future-managed-cloud/ http://insights.isg-one.com/rackspace-sold-toward-future-man...
ramaro 10y ago
Is it too late to sell it to Yahoo instead?
pbarnes_1 10y ago
RIP. SoftLayer has been growing substantially after the IBM acquisition. This space is pretty interesting.
soperj 10y ago
Wonder what this means for mailgun. They have wonderful customer support.
kondro 10y ago
This is the wrong time to be in the datacentre business. Especially one that traditionally provides a high-touch, traditional bare-metal based model. It probably doesn't make a dent in their revenue, but Xero is just completing their migration from Rackspace to AWS for reasons they don't articulate well.
ksec 10y ago
So what other BIG Cloud Hosting Companies are there left? Google, Microsoft, Amazon, IBM ( SoftLayer) OVH, AliYun.
- jamilaliahmed 10y ago
  Digitalocean, Vultr, Cloudways, Bluehost
  - ksec 10y ago
    none of these are anywhere close to be size of the above.

339 points by notmyname 10y ago

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. 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. I was kind of hoping Amazon would acquire them. I don't have much faith with the purchase being a PE firm. Time now to move the rest of our stuff off.

leesalminen 10y ago
I'm in the same boat. Where are you moving to?
- 20years 10y ago
  We have moved a lot of our stuff to AWS and plan to move 2 more sites that are on the RS dedicated server to AWS. 1 service in particular really does need a dedicated server and we plan to move that to a Hostnexus dedicated box. We have a couple of other boxes with Hostnexus that we have had for years. They are not as good as RS but they do have decent support especially for the price of the boxes (fraction of RS) http://www.hostnexus.com/solutions/dedicated-hosting.php http://www.hostnexus.com/solutions/dedicated-hosting.php
  - ezequiel-garzon 10y ago
    How come this is an order of magnitude more expensive than European providers such as OVH and Hetzner? Are there "American equivalents" of OVH and Hetzner? European goods are generally pricier, not the other way around!
- joshmn 10y ago
  If you're looking for premium, I'd check out LiquidWeb without hesitation. LimeStone Networks is also up there. Not affiliated with either, just really knowledgable of the industry.
- modoc 10y ago
  I would recommend that you look at SoftLayer, or if you'd like to avoid someone part of a larger company (IBM), SingleHop has also been awesome to work with.

jdpedrie 10y ago

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?

roymurdock 10y ago
Apollo is a private equity firm, so they are most likely acquiring Rackspace because they see fat they can trim (read: laying people off, outsourcing labor, tax optimization) off a decently competitive company that they can possibly take public or sell in 5-10 years. It's not so much about competing with Amazon, Google, etc. or advancing the state of the technology as much as making a bet that the brand is currently undervalued and that conditions in the cloud computing market will allow for a profitable exit in the medium term. For examples of Apollo bets that have gone wrong see its LBO of Harrah's (basically bankrupt) or Linens 'n Things (bankrupt).
- pm90 10y ago
  (Disclaimer: former employee of Rackspace) That is exactly how I read it. While Rackspace has been doing pretty well, its just not growing as fast as its competition and Wall Street in concerned. It is a big shame though. Rackspace is one of the few Texas-born companies that managed to strike it big and still have a very egalitarian culture. They have a very interesting culture and I wish it was something that could go on; a lot of my former coworkers absolutely love that environment. But it doesn't look like it will last for much longer.
  - jdubs 10y ago
    They've done amazing things for the community. I can only hope that Apollo group continues the local outreach!
  - charlesdm 10y ago
    For a successful LBO, growth is largely irrelevant. What is relevant however, is that you can protect your existing market share. If you can buy a company for $1bn with $800m in debt and pay that down, and sell it for $1bn again 5 or 10 years down the line, you just made a cool $800m. If you can double the net profit, you'll be able to sell it for $2bn, etc.

gtrubetskoy 10y ago

Interesting. In contrast just about a year ago Verio'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.

scurvy 10y ago
Verio's big play was in the transit business; they ultimately became NTT America.

rkrzr 10y ago

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

ghshephard 10y ago
Re: "Business not in terribly good shape" - there are 4.3 Billion reasons to suggest otherwise. This isn't the type of business that gets purchased without a lot of due diligence, and, we're not really in much of a tech bubble right now - so I thinks it's reasonable to asses that the underlying revenue/profit of Rackspace was sufficient to justify the (impressive) valuation.
- kgwgk 10y ago
  This impressive (?) valuation is not so impressive compared to what it used to be. Fun fact: any current shareholder that bought the stock between June 2009 and August 2015 would have done better buying a S&P 500 tracker.
- jasode 10y ago
  >Re: "Business not in terribly good shape" - there are 4.3 Billion reasons to suggest otherwise. I believe the "not terribly good shape" is a measurement that's _relative_ to other competitors in the cloud infrastructure market. Rackspace's yearly revenues ($2 billion) have gone nearly flat[1]. On the other hand, Amazon's AWS has seen so much growth[2] that they now pull more revenue per quarter ($2.5 billion) than Rackspace does for the entire year. Back in the early 2000s -- before AWS hit the scene, Rackspace hosting was attracting customers with excellent datacenter uptime and "fanatical support"[3]. Those 2 factors are not meaningful enough to the cloud subscribers today which is why Rackspace tried various strategies such as promoting OpenStack (hey don't be locked into proprietary AWS!) and then eventually "consulting services" to help customers use AWS. Neither of those initiatives really moved the needle. I'm currently a Rackspace customer spending $120 a year for them to host my email but customers like me are part of a dying source of revenue. (Everybody can use GMail for free!). Rackspace is "mature" instead of being "hot growth" which often translates to "not doing too well". [1]http://www.marketwatch.com/investing/stock/rax/financials http://www.marketwatch.com/investing/stock/rax/financials [2]http://www.statista.com/statistics/250520/forecast-of-amazon-web-services-revenue/ http://www.statista.com/statistics/250520/forecast-of-amazon... [3]https://www.rackspace.com/en-us/dedicated-servers/promise https://www.rackspace.com/en-us/dedicated-servers/promise

colinbartlett 10y ago

> $32 per-share-offer represents a premium of 6 percent to Rackspace's Thursday closing price. Quite a fall from almost $80 in 2013. 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.

pcurve 10y ago
ditto. customer in 2001-2003. Definitely 50% more than competitors back then for just a basic dedicated unix box. But founder and chief evangelist paid us a visit at our dinky little office in Manhattan, so that was a treat. :)
- nullcipher 10y ago
  2011-2013 surely :-)
  - taspeotis 10y ago
    https://en.wikipedia.org/wiki/Rackspace https://en.wikipedia.org/wiki/Rackspace Rackspace was launched in October 1998 with Richard Yoo as its CEO

chollida1 10y ago

I guess it was only a matter of time before they got bought out. It'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! It's never great for a companies employee'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's and given that this is an all cash transaction they should get some liquidity out of the deal!! Given that the RAX board unanimously approved the deal, I'm going to guess this is going through. Often when a company is brought private by a PE firm they'll combine it with other portfolio companies before spinning it back out. I don't see any relevant companies in Apollo's portfolio that could be joined to RAX. 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:) - Financing provided by Citi, Deutsche, Barclays, RBC; - Goldman advised RAX, Morgan Stanley also provided services in connection w/ deal; Citi, Deutsche, Barclays, RBC advised Apollo

calgoo 10y ago
I work for a relatively big European Network Provider and hoster who got privatized last year. Its not all horrible, but there is a lot of BS going around all the time. The worst are the rumors. You try not to listen to them, but when you are not sure if you have a job in 3 months, and you have spent at least a year more less in the same place, it does get to you. The word from above normally talks a lot of cost cutting and Sales! Sales! Sales!, which makes everyone else who is not part of Sales feel even more left out, as if their jobs are not important. When people start saying things like: "I don't care, but just tell me if I have a job or not" things are bad. The job market is still bad here in Spain, so a good paying job is hard to get these days. That means a lot of people stick around just for the financials. I have found some small personal opportunities as well, such as being able to work more from home, making changes in my area regarding things such as legacy products, but anything that costs money is normally out of the question.
- Ecio78 10y ago

colinramsay 10y ago

Over the past six months I'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're migrating away but this doesn't surprise me.

evanscottgray 10y ago
what was the use case when they wanted you to have a load balancer for a single server..?
- alanpost 10y ago
  I was told it was to avoid changing my DNS when I spun up a new server. With the load balancer being $50/month; that was the pitch that put me off Rackspace.
  - leesalminen 10y ago
    The LB itself (in IAD) is $10.95/month + traffic.
  - colinramsay 10y ago
    This was exactly it.
- crucialfelix 10y ago
  I've gotten the same recommendation from them. I complained because they pulled the network connection on the drive connected to the database and completely torched the drive. They were like: well maybe you should consider running multiple database machines with replication so you can survive the next time we screw things up.
  - aianus 10y ago
    This is true for all VPS hosting. They're cheap because they're commodity hardware that sometimes fails.

kolbe 10y ago

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

cpach 10y ago
What do you mean?
- adventured 10y ago
  That's a prediction, I believe, that Apollo will run Rackspace into the ground or perhaps just accelerate their demise in the confrontation with the big three competitors.
- kolbe 10y ago
  I think this is a smash-and-grab deal. They'll write down RAX's assets, then sell them while calling the difference between their sales price and the written down value "profits." They'll dish themselves out a dividend from the sales, maybe issue some more debt to buy additional infrastructure, then IPO it knowing that blackrock and fidelity and pension funds only look at earnings when they value companies (which they manufactured with their accounting gimmick), and flip the remaining shell of a company on to them for a hefty return. What's left will collapse under the debt load that Apollo stuck it with.
  - monkmartinez 10y ago
    That is dark and I like it. Seems to be what everyone is doing these days, just manipulating the books to make things look good before offloading to the next sucker.
  - shostack 10y ago
    Surely analysts at the companies you mentioned are wise to this and factor in the likelihood of this happening, no?

mkj 10y ago

Are Apollo likely to make money from it?

samfisher83 10y ago
PE companies usually do. They will just layoff a bunch of people cut salaries and probably saddle it with debt and get as much cash flow they can from the company.
- slantedview 10y ago
  ...and that's if things go as planned, where the result will be a smoldering mess of mediocrity.
- bluetwo 10y ago
  Layoff the people with know-how, but also hire a bunch of salespeople with lucrative commission plans.
  - kregasaurusrex 10y ago
    Primarily this. PE firms tend to do a poor job at putting people in charge who know a company's full stack operations, and tend to underpay new non-sales hires which results in a net loss of talent for the company. Do this too often and you become a stagnant company that can't draw in new customers.
- deleted 10y ago
  [deleted]

spriggan3 10y ago

I'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.

inputcoffee 10y ago

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

tsunamifury 10y ago
0.2 Whatsapps
schnevets 10y ago
1 Marvel. Marvel is always my measurement for these acquisitions. It's always fun to compare acquisitions to a cultural icon with +50 years of history. Moreso when the company is a mobile gaming company, social media site, or other "time-waster"
- inputcoffee 10y ago
  Yeah, I refer to Lucasfilms for almost exactly the same reason.
tedmiston 10y ago
If you will price on valuations: 1 Rackspace == 0.2 Snapchats per $22.7B valuation in May 2016.

thedlade 10y ago

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

raverbashing 10y ago
Are you sure? AWS was one of the most expensive ones, Rackspace was cheaper
- cmrdporcupine 10y ago
  Back in 2009/2010 when I was looking into it AWS was half the price for a roughly equivalent instance.
  - dagw 10y ago
    Did you run any benchmarks? Because I was looking at both during the same timeframe and Rackspace offered about 20-30% more 'operations'/dollar in our case.
  - raverbashing 10y ago
    Looking at their site it seems now what they do is resell AWS/Azure/Google offers, which is weird (and dedicated servers, which was what they always did)
brightball 10y ago
Great customer service.
- arethuza 10y ago
  Shockingly bad pre-sales though - in my last job I tried to engage with them on the hosting for a large scale ERP project for a multinational and they were pretty reluctant to get involved even though they advertised that they were targeting that niche and claimed expertise in the ERP application.

laveur 10y ago

I'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't destroy the good things Rackspace has going for it. Mainly their wonderful customer support.

mbesto 10y ago

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

frik 10y ago
Thoma Bravo has then * Qlik (BI) * Riverbed (APM, app & network analytics) * Dynatrace (APM, app & network analytics) * Compuware (mainframe maintenance, Dynatrace was a business unit of Compuware) https://thomabravo.com/portfolio/all/current/ https://thomabravo.com/portfolio/all/current/ What does Thoma Bravo do with two old-school APM companies that barely provide a modern cloud service, a BI that barely provide a cloud service and a stone age relict? Will the merge the company assets and lay-off some "fat"? Or wait until IBM or Microsoft wants to buy one of their companies?

jszymborski 10y ago

I'm praying that Mailgun doesn't get affected by this, they're absolutely awesome for the small shops like me (and easy to integrate).

20years 10y ago
Oh Yikes, totally forgot Mailgun is owned by RS. I have a few things using the Mailgun API too. I am hesitant to move to Sendgrid with what happened a couple of weeks ago and how they handled the outrage. At this point, I may just setup & manage my own box for email again. It is a real PITA but I just don't have a lot of faith in these 3rd party API's anymore.
- jszymborski 10y ago
  There's always Amazon SES when looking for cheap, low-volume transactional email, but it's always a headache to setup.
  - 20years 10y ago
    Used SES in the past. Poor delivery and they are super strict especially once you start sending volume.
jordanlev 10y ago
Just went through this process with the Mandrill debacle earlier this year. I've found SendGrid to be on par with Mailgun (with a less wonky admin dashboard too). Both have comparable 10k~12k free sends per month. If you're using the SMTP gateway instead of direct API integration (which is the only way I'd do it these days, after dealing with a bunch of sites that were tied to Mandrill's API), then there's not really much that needs to happen for the switch.
- Sir_Cmpwn 10y ago
  I just switched to running my software's email from my personal mail server when Mandrill died. Setting up your own mail server is a pain in the ass but it has paid off 100x imo.

nl 10y ago

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

joering2 10y ago

I'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. Is it time to move forward?? Will my hosting be affected??

cannonpr 10y ago
If you have a stable codebase and infrastructure you can probably still keep using them, if you rely on their technical services heavily I would start looking around. I expect most of their good people won't be there for much longer. In other words the services they provide you with will likely rapidly degrade.

devin481 10y ago

WATCH MOVIE FULL HD Rome / PS3 Gaming https://www.youtube.com/watch?v=x-ZjPtVBtRY https://www.youtube.com/watch?v=x-ZjPtVBtRY

keenerd 10y ago

As someone who's first VPS was from Slicehost: Oh, not this again.

mathattack 10y ago

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

clavalle 10y ago

I wonder if this will mean an influx of capital in the Austin/SA area.

avelis 10y ago
I was wondering this myself.

akulbe 10y ago

I understand that publicly traded companies are one cornerstone of our economy. That said, it'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. To me, when a company goes from private to public, it's not something to celebrate in the long-term. The company's focus inevitably seems to go from doing/creating something innovative, to maximizing shareholder value at any expense. Rackspace was awesome. RIP Rackspace. (I don't know this for a fact, of course... but as others have surmised already, this will likely be just another pump and dump.)

akulbe 10y ago
When I think of companies "doing it right", I think of the ones who choose to stay private and retain control. Slow but methodical growth. Basecamp. Dyson. Cargill. Patagonia. (to name a few)

abakker 10y ago

Rackspace'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'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'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. 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.

abakker 10y ago
Shameless self plug - http://insights.isg-one.com/rackspace-sold-toward-future-managed-cloud/ http://insights.isg-one.com/rackspace-sold-toward-future-man...

ramaro 10y ago

Is it too late to sell it to Yahoo instead?

pbarnes_1 10y ago

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

soperj 10y ago

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

kondro 10y ago

This is the wrong time to be in the datacentre business. Especially one that traditionally provides a high-touch, traditional bare-metal based model. It probably doesn't make a dent in their revenue, but Xero is just completing their migration from Rackspace to AWS for reasons they don't articulate well.

ksec 10y ago

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

jamilaliahmed 10y ago
Digitalocean, Vultr, Cloudways, Bluehost
- ksec 10y ago
  none of these are anywhere close to be size of the above.