Rackspace's $4.3 billion deal to go private allows it to transition to cloud support, 'strike more quickly'

Analysis: Rackspace has a big opportunity to offer its customer support services for multiple public clouds. The issue is it'll have to revamp its business to focus. Enter a deal to go private.

Rackspace

Rackspace is going private in a deal valued at $4.3 billion as the company aims to develop its cloud customer service business. Overall, the move to go private for Rackspace makes sense on multiple levels.

The company said the deal will close in the fourth quarter. Rackspace shareholders will get $32 a share in cash from Apollo Global Management.

Rackspace had reportedly been in talks about going private. The company, which helped launch OpenStack, had trouble competing with the scale of Amazon Web Services, Google, and Microsoft Azure. However, Rackspace has transitioned to offer customer support for other cloud providers. As more workloads move to the cloud, enterprises are going to want more support options.

Previously: Rackspace beats Q2 expectations | Rackspace nears buyout; Going private could boost cloud managed services effort

In a blog post, Rackspace CEO Taylor Rhodes said:

Rackspace faces a big opportunity as the early leader in the fast-growing managed cloud services industry. To seize that opportunity, we want greater flexibility to invest our resources in additional multi-cloud capabilities that we expect to result in long-term growth. This transformation is likely to impact our revenue and margins for multiple quarters.

After considering these factors, the board concluded that it can best advance shareholder value through this transaction with Apollo, which will result in Rackspace becoming a private company.

It's hard to argue with the Rackspace logic. Rackspace's business today is primarily data center hosting with cloud services. As it focuses more on cloud customer support, Rackspace will inevitably have a transition period that won't go over well with Wall Street, which lives on a 90-day calendar. Bottom line: If you have to reinvent your company it's best to do it in private.

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Meanwhile, Rackspace is following a well-worn tech vendor playbook. Dell is the most notable company that has gone private to retool its business.

Among the key points:

  • Rackspace plans to unload businesses that don't fit its strategy.
  • The company is allocating resources into businesses that focus on AWS and Microsoft Cloud.
  • Rackspace's data center and hybrid cloud services will target workloads that don't fit well in the public cloud.
  • Rhodes added that "as a private company, we expect that we will have the flexibility to strike more quickly."

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