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PE Firms and the Current Acquisition Spree

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SMAC is rapidly changing the IT environment

The Apollo Global-Rackspace (RAX) deal is the latest deal indicating the growing interest of PE firms in the technology space. With $186 billion in AUM (assets under management), Apollo is a PE firm that has diverse investments ranging from industrial, communications, media, consumer, services, and retail to the energy and healthcare sectors.

If we look at how the SMAC (social, mobile, analytics, and cloud) revolution is changing today’s IT (information technology) scenario in favor of the cloud, the M&A fever that has gripped the software space comes as no surprise. (For more on this, check out Market Realist’s “M&A Trend is Likely to Continue for Microsoft and the Tech Space?“)

Brent Thill, an analyst at UBS, believes that dealmaking activities will only increase, especially in the cloud software space as more and more big players have confidence in growth potential.

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In July 2016, Oracle (ORCL) announced the acquisition of NetSuite for $9.3 billion. In June 2016, Microsoft (MSFT) announced its largest acquisition to date, LinkedIn (LNKD), for $26.2 billion in cash. In early June 2016, Symantec (SYMC) acquired Blue Coat Systems, its largest acquisition in more than a decade.

Lowered valuations and significant cash are attractive

Private equity firms have also joined the M&A frenzy, as we discussed in previous parts of this series, with notable investments in Marketo and SciQuest in June 2016.

But lowered valuations due to expected fall in the IT (information technology) sector in 2Q16—in addition to the significant cash in this space—will provide ideal opportunities for increased M&A activity in the technology space.

In the next part, we’ll discuss Rackspace’s fundamentals.

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