Blog Coverage Apollo Global’s Acquisition Transforms Rackspace into a Privately Held Entity

LONDON, UK / ACCESSWIRE / August 29, 2016 / Active Wall St. blog coverage looks at the headline from Apollo Global Management LLC. (NYSE: APO) as the company announced its acquisition of cloud services company Rackspace Hosting Inc. (NYSE: RAX) for $ 4.3 billion on August 26, 2016. Register with us now for your free membership and blog access at: http://www.activewallst.com/register/.

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Apollo Global is an alternative investment manager in private equity, credit and real estate and the company has total asset under management (AUM) of approximately $170 billion, including approximately $40 billion in private equity, over $120 billion in credit and approximately $10 billion in real estate.

San Antonio, Texas based Rackspace was founded in 1998 with its core business in the managed cloud segment. Rackspace offers private, public and hybrid clouds in approximately 10 data centres located in four continents. Its cloud services are available in Microsoft Azure and Amazon Web Services data centres, as well as in customer-owned data centres.

The Deal

As per the terms of agreement, Apollo Global will pay $32 per share in cash to shareholders of Rackspace. The deal is valued at $ 4.3 billion, which includes the assumption of $43 million of net cash and is expected to close by the end of FY 2016. Once the deal is final Rackspace will become a privately owned entity. The Board of Directors of Rackspace has already approved the deal and is waiting for shareholders and regulatory approval. Apart from Apollo Global, Searchlight Capital Partners will also make a strategic investment in the new entity through funds managed by it. After becoming a private company, Rackspace will continue to operate under its name and maintain its headquarters at San Antonio. There will be no changes to management team and Taylor Rhodes will continue as CEO.

In a press release, Graham Weston, co-founder and chairman of the board of Rackspace said:

“We are also excited that this 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.”

David Sambur, Partner at Apollo Global said:

“We are tremendously excited about the opportunity for our managed funds to acquire Rackspace. We have great respect for the company’s talented employees and their commitment to deliver expertise and exceptional service for the world’s leading cloud platforms.”

Benefits for Rackspace

As the cloud market becomes more and more competitive Rackspace needs to evolve and enhance its product offerings. According to Rackspace, Apollo Global is an ideal partner and understands Rackspace potential and values its business approach and culture. The deal gives flexibility to Rackspace, allowing it to aggressively ramp up its capabilities and resources in order to exploit market opportunities. With the resources of Apollo Global, Rackspace will be better placed to offer competitive compensation and benefits enabling it to retain its workforce and have a robust working culture.

Apollo Global has been making strategic investments in various sectors and has been looking to get a slice of the growing cloud computing space. This acquisition is a great opportunity in the technology sector. On August 18, 2016, Apollo Global announced that its affiliates have entered into a strategic partnership with Nike Inc. regarding the apparel supply chain in the Americas. This innovative strategic partnership will increase regional manufacturing capabilities, enable quicker delivery of more customized product to consumers and drive investment in sustainability. In July 2016 Apollo Global announced acquisition of Outerwall Inc., the owner of Redbox brand which is in the gaming and movie rentals through kiosks.

Market reaction

Following the announcement of the agreement, Rackspace shares surged 4.34% at $31.50 per share at the close on August 26, 2016, with a total volume of 38.58 million shares being traded for the day, higher than the 3 month average volume of 2.07 million shares. Rackspace shares have advanced 35.60% in the past one month and 24.41% on YTD basis.

Apollo Global’s shares declined marginally by 0.05% closing the trading session at $ 18.46, with a volume of 623,800 shares being traded for the day. Apollo Global’s shares have gained 10.72% in the past one month and have added 28.53% since the beginning of the year.

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