UPDATED 01:14 EDT / AUGUST 05 2016

NEWS

Rackspace on the verge of private equity buyout

Rackspace is reportedly close to being bought out by a private equity firm, almost two years after it first said it was planning to pursue strategic alternatives, the Wall Street Journal reported.

In the time since it first announced it was looking for a new buyer, Rackspace’s fortunes drastically improved as it pursued a new business strategy of offering support for multiple public cloud providers, including Amazon Web Services (AWS) and Microsoft Azure. The company also hired a new CEO, and has delivered successive solid quarters.

The company’s new strategy has clearly been successful, and seems to have made it a more attractive target for prospective buyers. As such, the Wall Street Journal says Rackspace could be sold for as high as $4 billion. It notes that Rackspace is due to report its second-quarter earnings on Aug. 8, and suggests an acquisition announcement could be made either before or on that date.

Rackspace is perhaps most notable for helping to found the OpenStack project, and also caught attention for its brave but ultimately doomed fight against AWS and others in the intensely competitive Infrastructure-as-a-Service (IaaS) market.

Rackspace is the second high profile tech firm to be the subject of private equity takeover talks this week. On Monday, it was reported that private equity firms were in talks to acquire Hewlett-Packard Enterprise (HPE) and take that company private. A second story suggested the firms were only interested in some of HPE’s software assets, however.

If Rackspace does go private it would have more freedom to focus on its support services for AWS and Microsoft Azure, and could also pursue other projects without the pressure of close investor scrutiny. However, as SiliconANGLE’s Paul Gillin noted in his commentary of HPE’s rumored buyout, the standard modus operandi of some private equity firms is to buyout “beleaguered” companies and introduce cost-cutting measures to make them more profitable. Failing that, they simply chop up companies into smaller pieces and sell them off.

“The success of a private equity buyout depends a lot upon the investors,” Gillin wrote. “Patient ones will give the company leeway to make long-term investments that can return the company to growth without sacrificing profitability.”

Photo Credit: Garrett Heath via Compfight cc

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