Rackspace, which is still best known as a hosting company even as it has expanded aggressively into offering services for businesses that use other platforms, went public in 2008. Now, however, it’s going private again after accepting a $4.3 billion offer (or $32 per share) in cash from private equity firm Apollo Global Management. The deal is still subject to regulatory approval and is expected to close in the last quarter of this year.
Over the last few years, it became increasingly clear that Rackspace wasn’t going to be able to compete with the likes of AWS, Google and Microsoft in the cloud space, despite getting an early start in this business. The company then turned toward offering managed hosting services with a strong focus on helping enterprises manage both their private clouds and cloud deployments on the likes of AWS and Azure. Rackspace, together with NASA, also founded the open source OpenStack project, which provides enterprises with the building blocks for setting up their own private clouds (which it will also happily manage for its customers). Rackspace itself is one of the largest OpenStack users in its public cloud, too.
This move toward becoming more of a services company has worked reasonably well and Rackspace’s quarterly results have pointed upwards for the last few years. That slow but steady growth, however, wasn’t rewarded by Wall Street, with the company’s stock recently trading as low as $16.76, down from almost $80 back in 2013 and a high of close to $55 in early 2015. That made the company an obvious candidate for going private again with the help of a private equity company like Apollo.
“We are presented with a significant opportunity today as mainstream companies move their computing out of corporate data centers and into multi-cloud models,” said Taylor Rhodes, president and CEO of Rackspace, in a canned statement today. “Apollo and its partners take a patient, value-oriented approach to their funds’ investments, and value Rackspace’s strategy and unique culture. This is an exciting transaction for Rackspace and we look forward to working closely together.”
It remains to be seen how Apollo will manage Rackspace and how patient it will be, but there may be an upside for the company here as it will be able to grow and continue its transformation at its own pace.