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Rackspace cloud gets acquired, set to go private

An equity firm will acquire Rackspace so the cloud vendor can go private and transition away from competing with the likes of Amazon Web Services and partner with them instead. The $32 per share cash deal is valued at $4.3 billion.

Rackspace is one of the earliest cloud providers that tried to compete with Amazon AWS and Microsoft Azure. Founded in 1998, it has been trading publicly on the New York Stock Exchange since 2008. It reported revenue growth of $2 billion last year. Its stock price was once valued at $80 a share but it has been trading at $31.46 a share.

The deal with Apollo Global Management, LLC is expected to give Rackspace cloud the investment dollars it needs to transition as a managed cloud services provider that partners with Amazon AWS, Microsoft Azure and Google. The idea is Rackspace will provide customers with the kind of support that the big public cloud vendors lack.

“AWS does not offer high-touch support for people using the public cloud,” said Molly Gallahar Boddy, a research analyst at Technology Business Research, Inc. “You need to turn to an AWS partner for 24-by-7 support.”

Boddy said Rackspace cloud can help customers with data migration to the cloud, optimization and architectural designs.

“One thing a lot of companies at is security,” she said. “Rackspace was in the private cloud so they can cater to certain environments where you need that extra security layer. Smaller customers may not have these kind of services in-house.

“Going private will also give them a chance to partner with all kinds of different cloud companies,” Boddy said. “Going private gives Rackspace a chance to work out not only the messaging but the funding as well. It’s hard to transition from a hosting-based company to a cloud services-based company.”

Rackpace cloud is the latest in the technology industry to go private. Other examples include Dell and Marketo, a software automation vendor that announced it was acquired byVista Equity Partners for $1.79 million and would take it private.

Dell is the highest profile company to make the move, announcing in 2013 a $24.4 billion deal to take itself private as it transition from a personal computers vendor to one that can compete cloud-driven industry. Dell will also take EMC private after it completes its $67 billion buyout of the world’s largest storage vendor.

According to a report written by Boddy, Rackspace’s “shifting business model has created uncertainty for those following the company. Although Rackspace has reported early customer wins and new logos with its recently debuted Fanatical Support (managed services) for AWS and Fanatical Support for Microsoft Azure, the company requires additional capital to further focus its business on third-party Fanatical Support…and to win enterprise accounts.”

Boddy said she expects that Private Cloud OpenStack will be a key tenant of Rackspace’s business going forward since the company is supporting large public cloud vendors while also catering to hybrid cloud customers looking for managed, private OpenStack deployments.