Rackspace Going Private after $4.3 Billion Buyout

Rackspace is going private in a transaction valued at $4.3 billion or $32 a share, the San Antonio, Texas-based cloud computing company announced today.

The buyout is being led by Apollo Global Management, a private equity firm known for acquiring home security company ADT earlier this year for nearly $7 billion and earlier deals involving McGraw Hill Education and satellite radio operator Sirius.

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Commenting on the move, Graham Weston, co-founder and chairman of the board of Rackspace, said in a statement that the “transaction will provide Rackspace with more flexibility to manage the business for long- term growth and enhance our product offerings. We are confident that as a private company, Rackspace will be best positioned to capitalize on our early leadership of the fast-growing managed cloud services industry.”

Earlier this year, Rackspace signaled a shift away from the public OpenStack cloud to private implementations and increased support for Amazon Web Services (AWS) and Microsoft’s Azure cloud platform. “Our top priority is to lead the AWS managed service provider ecosystem, letting AWS provide the economies of scale on its infrastructure, while we provide valuable economies of expertise,” said Taylor Rhodes, CEO of Rackspace during a Feb. 16 earnings call.

In an Aug. 26 blog post exploring the decision to sell to Apollo, Rhodes said that after unloading its Exceptional, Jungle Disk and Cloud Sites businesses, “the resources from those sales into new lines of business such as our services for customers who use AWS and the Microsoft Cloud — services that, while relatively small, are growing rapidly.”

In terms of OpenStack – the popular cloud-computing platform originated from a project spearheaded by Rackspace and NASA – Rhodes reiterated that his company has “been pivoting OpenStack to become the leading technology in the enterprise and mid-market private cloud space.”

The company released Rackspace Private Cloud powered by Red Hat in February. Using the Hat Enterprise Linux OpenStack Platform, the product helped extend Rackspace’s OpenStack-as-a-service product slate.

“As the leading operator of OpenStack clouds with the most comprehensive OpenStack product portfolio in the industry, Rackspace is excited to expand our managed services and expertise to the Red Hat Enterprise Linux OpenStack Platform,” said Darrin Hanson, vice president and general manager of OpenStack Private Cloud at Rackspace, in a statement at the time. “We help make OpenStack simple by eliminating the complexity and delivering it as-a-service to customers in their data center, a Rackspace data center or in a colocation facility.”

Rackspace and Apollo are moving quickly to complete the transaction. They expect the deal to close in the fourth quarter, pending customary approvals and the results of a stockholders’ vote.

Pedro Hernandez is a contributing editor at Datamation. Follow him on Twitter @ecoINSITE.

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