Hybrid Cloud

Cloud Host Rackspace Taps Morgan Stanley to Help Evaluate its M&A Options

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Cloud hosting provider Rackspace has hired Morgan Stanley to seriously explore options such as acquisition by another entity, according to reports from the Bloomberg news service. This has caused a boost to its stock price, and has also fueled speculation on the future of the San Antonio-based company.

The company said in a statement, “In recent months, Rackspace has been approached by multiple parties who have expressed interest in a strategic relationship with Rackspace, ranging from partnership to acquisition.”

Rackspace, however, notes that exploring its options may not result in any partnership or transaction, and there is no specific time-frame for making such a decision.

Forbes contributor Ben Kepes notes, however, that this announcement comes at a time when competition in the cloud space is heating up, and enormous capital is required to economically provide rentable IT infrastructure. And it might be difficult for Rackspace to compete with the likes of IBM, Google, Amazon and Microsoft on its own.

Starting in March 2014, Google, Amazon and Microsoft announced major price cuts to their cloud services, causing many to think that economies of scale were the only way to compete. While discussing its earnings report this week, however, Rackspace CEO and executive chairman Graham Weston said that Rackspace offers a more hands-on, managed cloud experience that is in a different category than the commodity solutions from competitors.

Speculation on Possible Buyers Runs Rampant

Having bought Rackspace competitor SoftLayer last year, IBM could be in the market for Rackspace, but also AT&T and HP could have interest according to Oppenheimer analyst Tim Horan.

Piper Jaffray analyst Andrew Nowinski said Cisco could be looking to buy Rackspace to support its recently announced public cloud, InterCloud. He also noted that EMC and Equinix could also be interested buyers.

Meanwhile, share prices for Rackspace are on a double-digit percentage increase since the news broke late yesterday to be worth more than $36 per share. William Blair analyst Jim Breen said share prices for Rackspace might rise as high as $54 per share based on recent cloud computing deals.

About the Author

David Hamilton is a Toronto-based technology journalist who has written for the National Post and other news outlets. He has covered the hosting industry internationally for the Web Host Industry Review with particular attention to innovative hosting solutions and the issues facing the industry. David is a graduate of Queen’s University and the Humber College School of Media Studies.

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