Rackspace Channel Partners Bubbling With Speculation About Possible Acquisition


Rackspace sent shockwaves through the tech world on Thursday by informing the SEC it had hired Morgan Stanley to begin formally exploring a merger or acquisition.

On Friday, Rackspace partners told CRN they're still trying to figure out which cloud vendors could be potential suitors.

In the Rackspace channel, speculation as to who might buy the cloud vendor falls into two categories: companies already in the OpenStack ecosystem that Rackspace had a major role in developing, and companies that might be looking to make an authoritative entrance into the premium end of the public cloud market.

[Related: Rackspace Hires Morgan Stanley To Explore Its Options]

Jeff Chandler, President of American Technology Services, a managed services provider and Rackspace partner, told CRN that “it seems inevitable that Rackspace will be acquired by somebody and this seems as good a time as any.”

Chandler doesn’t see companies that have already carved out solid positions in their respective markets, like Verizon, Amazon or IBM, making bids.

"As a channel partner, we would welcome an acquisition of Rackspace by a larger company that has a better developed channel partner program, such as Microsoft, Dell, or even Citrix,” he told CRN.

Partners told CRN it seems likely that whatever company makes a play for Rackspace will be committed to OpenStack.

At least one Wall Street analyst shares this view. "Because Rackspace operates the largest production deployment of OpenStack and is the second-largest public cloud provider to Amazon Web Services, it could be a strategic asset to other companies in the OpenStack ecosystem, such as AT&T, IBM, EMC, HP, and VMware,” wrote Jim Breen, an analyst at William Blair & Co., in a report published Friday.

Rackspace spokespeople told CRN they could not comment on Thursday’s announcement, which has generated a fair amount of uncertainty within the San Antonio-based vendor's channel.

In its SEC filing, Rackspace said the price wars in the public cloud space were forcing it to seek a strategic partnership. But many industry watchers noted that Rackspace has never really been in head-to-head competition with Amazon or Google, and instead positions its cloud as a premium offering, one built around a concept it markets as "fanatical support.”

If Rackspace does get acquired, the company that buys it will be interested in using this commitment to top-tier services to differentiate themselves from the big commodity cloud players Rackspace claims are pushing them to seek acquisition in the first place, partners said.

Cisco has been frequently mentioned as a possible suitor.

Kent MacDonald, vice president at Long View Systems, a Canadian managed services provider and Cisco partner, hasn’t heard rumors about such a partnership, but said "it certainly would be a jump-start to have a very scalable cloud infrastructure."

Cisco's Intercloud, a global chain of regional data centers, would be bolstered quickly with Cisco taking over the Rackspace infrastructure, MacDonald said.

"I would certainly be more comfortable with a Cisco-owned infrastructure. They would be large global players that they can go out and brand, and we'll have this mix of former competitors under the Cisco banner that we can work with,” MacDonald said.

Financial markets are reacting positively to the prospect of a Rackspace acquisition. Rackspace shares, which were trading at $28.28 a share before the announcement, rose nearly 18 percent on Friday, closing at $36.12 per share.

PUBLISHED MAY 21, 2014