Managed service provider (MSP) Rackspace Hosting announced today its agreement to acquire fellow MSP competitor Datapipe. While financial details remain undisclosed, Rackspace CEO Joe Eazor has stated that the deal is the biggest purchase in the company’s history. The acquisition will be financed with debt and equity.
The combined entity, according to Rackspace’s executive team, will potentially have an annual revenue of $2.4B and employ ~6,700 people. The deal is expected to close in the fourth quarter of 2017.
Consolidation to Remain Competitive
Entry into New Markets: The acquisition will expand Rackspace’s data center footprint by 29 server farms and provide geographic coverage where it has no data center presence, including Latin America, Europe, China and Russia. This deal comes a few months after Rackspace completed the acquisition of application management specialist TriCore Solutions in June, which was the biggest acquisition at the time.
Unique Value: Datapipe was founded in 1998 by Robb Allen and has raised more than $300M since its founding. A year ago, the company acquired Adapt, a London-based MSP, and has developed many highly valued tools with its skilled workforce. Datapipe’s infrastructure, custom-built automation tools, colocation services, certifications and professional services talent are some factors that make Datapipe a desirable addition to Rackspace’s portfolio. In addition, the company developed a VMware-powered hosted private cloud and a platform for other service providers.
Competitive Edge via M&A: Through their own data centers, both MSPs have strong hosting businesses and also have partnerships with hyper-scale cloud providers. While both companies are among the biggest MSPs within AWS, neither quite has the scale to compete against giants on their own. Ultimately, to remain competitive in the multi-cloud space, scale is necessary — and this acquisition will make the combined company the largest player in the managed public cloud, largest player in private clouds, and continued largest player in managed hosting.
Private Equity Benefits: Private equity firm Apollo Global Management acquired Rackspace for $4.3B in November 2016, taking the once-public company private. As a privately held firm with strong financial backing, Rackspace has been able to focus on a new strategy of attaining scale and gaining more specialized capabilities via both M&A and partnerships; Rackspace is working with Lighstream to provide custom managed Microsoft cloud solutions, for example.
For more information about this transaction, click here to read the press release.
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