After years of rumours that Rackspace was looking to sell itself or go private, on Friday the company finally announced a deal. Private-equity firm Apollo Global will pay $32 per share in cash, or $4.3 billion, to acquire Rackspace, it said in a statement on Friday.
That’s a 38% premium to Rackspace’s closing price on August 3, and 6% above the stock’s closing price on Thursday.
This exit from the public market can be laid squarely at the feet of Amazon Web Services.
Amazon and Rackspace used to be such fierce competitors in cloud computing that Rackspace spearheaded a project called OpenStack to give itself and other IT vendors a chance to compete with Amazon.
OpenStack is a cloud operating system. An enterprise can install it in their own data center and then choose among many OpenStack cloud services, moving apps and data between them all, never being locked into to a single cloud provider. It was the anti-Amazon AWS.
OpenStack has been hugely successful, too. It’s became a major product for many big IT players like HP and Red Hat. OpenStack has even given birth to one unicorn startup, Mirantis,
But it didn’t save Rackspace, which continued to get creamed by Amazon and other competitors like Microsoft.
Instead, Rackspace changed directions and simply stopped going head-to-head with its bigger rivals. At first it fired up a partnership with Microsoft to sell and support Microsoft’s cloud Azure.
And last fall, it doubled down and fired up a similar partnership with, of all competitors, Amazon. Rackspace’s claim to fame was offering higher quality (and more expensive) customer service, something for which Amazon had a poor reputation at the time. With Microsoft and Amazon as partners, Rackspace dedicated itself to helping large companies use multiple clouds.
And the tactic was working. Rackspace reported beats on earnings and revenue for two quarters, but slipped on revenues in the next quarter sending its stock tumbling and talks about a sale ramped up again.
It says something that the company went private instead of being bought by its partners, Amazon, Microsoft or any IT firms looking to jump start their cloud revenues (Oracle and SAP come to mind).
Some in the industry say that Amazon has already won the cloud and that even the likes of Google won’t be able to stop Amazon. One former EMC exec says Amazon ate his former employer and put the enterprise computer storage industry on life support.
One thing is for certain, the stakes in cloud computing are very high now.
Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.
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