Apollo Global Management to buy Rackspace
On August 26, 2016, Rackspace (RAX) became the latest technology company to yield to the changing dynamics of the IT (Information Technology) environment. PE (private equity) firm Apollo Global Management has agreed to buy Rackspace for $4.3 billion. This deal is expected to close in calendar 4Q16, after which time Rackspace will become a privately held company.
Apollo has agreed to pay $32 per share to Rackspace shareholders, which represents a premium of approximately 38% over the company’s stock price before the Wall Street Journal reported that the deal was about to be finalized earlier in this month. The news of Rackspace’s possible sale provided a major boost to the stock, which surged by ~30% on August 4, 2016.
Growing competition in cloud space
Increasing competition and concentration in the cloud space has increased the challenges for Rackspace. Amazon.com (AMZN) rules the cloud space with a 31% market share, followed by Microsoft (MSFT), IBM (IBM), and Google (GOOG) (GOOGL), which collectively account for 22% of the cloud space.
Apart from the four players mentioned above, the next 20 players include Rackspace, Oracle (ORCL), Salesforce (CRM), and VMware (VMW), which grew by 41% on average on a yearly basis. These 20 players collectively held 27% of the cloud space. But Synergy Research’s estimates show that the cloud space is growing at more than 50%, which indicates that these 20 are losing market share.
Continue to the next part for a closer look at the factors that led to Rackspace’s sale.