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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 pic

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.
- kingosticks 10y ago
  I hope that fat doesn't include their free accounts for OSS projects and communities, that'd be sad.
caminante 10y ago
All of the above. AWS (AMZN's public cloud reporting segment): FY15 Revenues: $7.8 billion CAGR (FY13-FY15): 59% FY15 Op Margin: 23% RAX: FY15 Revenues: $2.0 billion CAGR (FY13-FY15): 14% FY15 Op Margin: 10%
- jdubs 10y ago
  They're targeting different segments on different business requirements. Their numbers will never be comparable.
  - caminante 10y ago
    RAX's strategy has shifted to "different segments" directly as a result of competition from AWS [0]. Now, AMZN has considerable supplier power over RAX: "The deal would have been unthinkable just two years ago, when Rackspace and AWS were fierce rivals. But in early 2014, Rackspace, facing ever slimmer margins amid a cloud-computing price war, withdrew from head-to-head competition with Amazon. Since then, it has focused on offering higher-margin services." [0] http://www.wsj.com/articles/rackspace-teams-up-with-amazon-1443568218 http://www.wsj.com/articles/rackspace-teams-up-with-amazon-1...
    - crack-the-code 10y ago
      Yes but even prior to this, Rackspace had been a managed cloud provider, meaning they offer services on top of the infrastructure. This is different than AWS.
      - caminante 10y ago
        RAX has its roots in managed cloud, but they moved away from that. They got into IaaS, but have retrenched. Here's RAX's mapping of AWS to RAX P&S for IaaS [0]. That's a lot. RAX has decided to return to its roots (managed cloud) and seek differentiation because it can't compete on IaaS.[1] That'll be tough. RAX's going private to shift its P&S mix and turn things around. edit: I'll also point to jsode's great comment above. [0] https://support.rackspace.com/how-to/mapping-of-amazon-web-services-resources-to-rackspace-resources/ https://support.rackspace.com/how-to/mapping-of-amazon-web-s... [1] http://www.networkworld.com/article/2461361/iaas/rackspace-bows-out-of-iaas-market.html http://www.networkworld.com/article/2461361/iaas/rackspace-b...
wcarss 10y ago
The Dell/EMC purchase may have been just to buy and then sell VMware, which EMC owned. If I recall correctly, EMC and VMware had both lost meaningful value after uniting and it was commonly held that VMWare was worth much more, so Dell is likely try to rip those two apart, pump VMware back up, sell it at a profit on the whole EMC purchase, and keep the EMC assets as gravy. One sign of this occurring is the aggressive layoffs VMWare initiated of its cost centres (e.g. in support) soon after the purchase.
- illumin8 10y ago
  I agree with your speculation; it seems likely, however, I don't understand why laying off staff at VMware would help make the company stronger - is it just supposed to make the balance sheet look good in the short term? Short-term results oriented layoffs like this decimated HP under Carly Fiorina, and I don't have a good long-term outlook on VMware, if Dell decides to take a similar approach.
  - wcarss 10y ago
    My understanding is that it is purely to improve the short term outlook on paper. I agree that it does not seem wise for the actual health of the entity.

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.
kingosticks 10y ago
I hope that fat doesn't include their free accounts for OSS projects and communities, that'd be sad.

caminante 10y ago

All of the above. AWS (AMZN's public cloud reporting segment): FY15 Revenues: $7.8 billion CAGR (FY13-FY15): 59% FY15 Op Margin: 23% RAX: FY15 Revenues: $2.0 billion CAGR (FY13-FY15): 14% FY15 Op Margin: 10%

jdubs 10y ago
They're targeting different segments on different business requirements. Their numbers will never be comparable.
- caminante 10y ago
  RAX's strategy has shifted to "different segments" directly as a result of competition from AWS [0]. Now, AMZN has considerable supplier power over RAX: "The deal would have been unthinkable just two years ago, when Rackspace and AWS were fierce rivals. But in early 2014, Rackspace, facing ever slimmer margins amid a cloud-computing price war, withdrew from head-to-head competition with Amazon. Since then, it has focused on offering higher-margin services." [0] http://www.wsj.com/articles/rackspace-teams-up-with-amazon-1443568218 http://www.wsj.com/articles/rackspace-teams-up-with-amazon-1...
  - crack-the-code 10y ago
    Yes but even prior to this, Rackspace had been a managed cloud provider, meaning they offer services on top of the infrastructure. This is different than AWS.
    - caminante 10y ago
      RAX has its roots in managed cloud, but they moved away from that. They got into IaaS, but have retrenched. Here's RAX's mapping of AWS to RAX P&S for IaaS [0]. That's a lot. RAX has decided to return to its roots (managed cloud) and seek differentiation because it can't compete on IaaS.[1] That'll be tough. RAX's going private to shift its P&S mix and turn things around. edit: I'll also point to jsode's great comment above. [0] https://support.rackspace.com/how-to/mapping-of-amazon-web-services-resources-to-rackspace-resources/ https://support.rackspace.com/how-to/mapping-of-amazon-web-s... [1] http://www.networkworld.com/article/2461361/iaas/rackspace-bows-out-of-iaas-market.html http://www.networkworld.com/article/2461361/iaas/rackspace-b...

wcarss 10y ago

The Dell/EMC purchase may have been just to buy and then sell VMware, which EMC owned. If I recall correctly, EMC and VMware had both lost meaningful value after uniting and it was commonly held that VMWare was worth much more, so Dell is likely try to rip those two apart, pump VMware back up, sell it at a profit on the whole EMC purchase, and keep the EMC assets as gravy. One sign of this occurring is the aggressive layoffs VMWare initiated of its cost centres (e.g. in support) soon after the purchase.

illumin8 10y ago
I agree with your speculation; it seems likely, however, I don't understand why laying off staff at VMware would help make the company stronger - is it just supposed to make the balance sheet look good in the short term? Short-term results oriented layoffs like this decimated HP under Carly Fiorina, and I don't have a good long-term outlook on VMware, if Dell decides to take a similar approach.
- wcarss 10y ago
  My understanding is that it is purely to improve the short term outlook on paper. I agree that it does not seem wise for the actual health of the entity.