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Apollo agrees to buy Cloud Seller Rackspace for $4.3b

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Apollo Global Management LLC agreed to buy cloud-services company Rackspace Hosting Inc for US$4.3 billion.

[NEW YORK] Apollo Global Management LLC agreed to buy cloud-services company Rackspace Hosting Inc for US$4.3 billion.

The New York-based private equity firm will buy San Antonio-based Rackspace for US$32 a share in an all-cash transaction, according to a statement Friday. As part of the deal, funds managed by Searchlight Capital Partners will make an equity investment in the acquired company. The deal is expected to be completed in the fourth quarter.

Rackspace has struggled to compete in the accelerating race to move corporate computing to the cloud. While the company still counts Inc. and Microsoft Corp as rivals, Rackspace has more recently started helping companies shift their IT operations to its larger competitors' servers. Becoming a private company will give Rackspace the time and space to complete the transition.

Rackspace is "gaining traction, but they're very small," said Joshua Yatskowitz, a Bloomberg Intelligence analyst. "Bringing it out of the public eye can make that transition a lot easier for them." The deal represents a 38 per cent premium to Rackspace's closing price on August 3, before a Wall Street Journal report about the potential sale boosted share prices. The stock has risen about 30 per cent since the news about a potential sale.

Last year, Apollo acquired Presidio Inc, an information- technology consulting company. The private-equity firm also has taken a number of companies private this year, including home- security company ADT Corp, which at US$12 billion was the biggest private equity-backed acquisition announced this year.  Apollo's advisers for the deal are Citigroup Inc, Deutsche Bank AG, Barclays Plc and RBC Capital Markets. Paul, Weiss, Rifkind, Wharton & Garrison LLP acted as legal adviser. Goldman Sachs Group acted as Rackspace's financial adviser. The company's legal adviser was Wilson Sonsini Goodrich & Rosati.

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"This transaction will provide Rackspace with more flexibility to manage the business for long-term growth and enhance our product offerings," Graham Weston, chairman and co- founder of Rackspace, said in the statement. "As a private company, Rackspace will be best positioned to capitalize on our early leadership of the fast-growing managed cloud services industry."


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