Private Equity Consortium Buys Rackspace for $4.3 Billion in Cash

Rackspace, one of the world’s largest cloud hosting providers, has entered into a $4.3 billion transaction to become a private company – through an acquisition led by certain private equity funds managed by affiliates of Apollo Global Management. Rackspace stockholders will receive $32.00 per share in cash. The Rackspace board of directors unanimously approved the agreement with the Apollo Funds and recommends that Rackspace stockholders vote in favor of the transaction.

The $32.00 per share cash consideration represents a premium of 38% when compared to Rackspace’s unaffected closing stock price on August 3, 2016, the last trading day prior to news reports speculating about a potential transaction. In connection with the transaction, funds managed by Searchlight Capital Partners, L.P. will make a strategic equity investment in the acquired company.

The transaction is expected to close in Q4 2016. The transaction is subject to the conclusion of the applicable antitrust waiting periods in the United States, the European Union and Israel, stockholder approval and other customary closing conditions.

“We are presented with a significant opportunity today as mainstream companies move their computing out of corporate data centers and into multi-cloud models,” said Taylor Rhodes, president and CEO of Rackspace. “Apollo and its partners take a patient, value-oriented approach to their funds’ investments, and value Rackspace’s strategy and unique culture. This is an exciting transaction for Rackspace and we look forward to working closely together.”

Fast-Growing

Financing is being provided by Citigroup, Deutsche Bank, Barclays and Royal Bank of Canada. PSP Investments Credit USA LLC has also committed to provide a portion of the financing.

rackspace cloud hosting“This transaction is the result of diligent analysis and thoughtful strategic deliberations by our board over many months,” said Graham Weston, co-founder and chairman of the board of Rackspace. “We are 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.”

Rackspace has been publicly traded on the New York Stock Exchange since 2008. It serves business customers in more than 120 countries, from offices and data centers on four continents. Rackspace has posted consistent growth in revenue and profit through its history. It reported 2015 revenue of $2.0 billion.

“We are tremendously excited about the opportunity for our managed funds to acquire Rackspace,” said David Sambur, Partner at Apollo. “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. We look forward to working with Taylor and the entire management team and Searchlight to help advance Rackspace’s strategy and continue the company’s strong heritage of innovation.”

Apollo is a leading global alternative investment manager with offices in New York, Los Angeles, Houston, Chicago, Bethesda, Toronto, London, Frankfurt, Madrid, Luxembourg, Mumbai, Delhi, Singapore, Hong Kong and Shanghai. Apollo had assets under management of approximately $186 billion as of June 30, 2016 in private equity, credit and real estate funds invested across a core group of nine industries where Apollo has considerable knowledge and resources.

Searchlight Capital Partners, L.P. is a global private investment firm with offices in New York, London and Toronto. Searchlight seeks to invest in businesses where its long term capital and strategic support accelerate value creation for all stakeholders.

 

Furlow consulting