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Rackspace rumoured to be discussing $4bn sale to private equity

Level 3 is spending $6.7bn on the deal

Rackspace is reportedly in talks with a private equity firm with regard to a $4 billion sale, according to the Wall Street Journal.

This is not the first time the company has been rumoured to be in such talks, though it does demonstrate Rackspace’s fall from grace. At the peak of its power, when Rackspace was one of the more notable technology companies in the world, share prices traded at roughly $80. At the time of writing, shares are listed at $31.80 on Google Finance, which includes a 30% boost over the last 24 hours.

In recent months Rackspace has been undergoing a business transformation to better enable it to capitalize on the burgeoning cloud market. Although there are numerous companies who have risen to fame on the back of cloud computing, most notably Amazon Web Services, Rackspace has struggled to establish itself in the evolving digital landscape. With AWS, Microsoft Azure, Google and IBM pulling away at the top of the cloud market share leader board, Rackspace has been working through a transition to a managed services company.

Should the rumours be true it will signal a move which has been hinted at over the last couple of months. Rackspace has announced a number of partnerships with leading industry players to simplify the process of transferring customers operations from its own infrastructure to AWS’ and Microsoft Azure’s. After a period of taking on the cloud giants head-to-head, Rackspace seemingly withdrew from the competition, focusing more on the managed services segment.

The cloud computing market has certainly been fruitful for certain organizations, AWS are verging on breaking through the $10 billion barrier for annual revenues, though it has forced companies to adapt to the new digital world. Microsoft is one of those organizations which was forced to evolve, and has done successfully.

Back in the 80’s and 90’s Microsoft was arguably one of the most important companies in the world, though more modern competition and the decline of the personal computer pushed it into the shadows during the noughties. The “I am a Mac | I am a PC” advertising campaign demonstrated this quite humorously. However, leading the charge with its Azure cloud offering, Microsoft has now risen to prominence once again in the technology industry. Rackspace is a company which has struggled with the transition.

Rackspace has been one of the larger casualties of the cloud computing evolution. Much like Blockbuster in its unsuccessful battle against Netflix, some companies are not set up for the world of tomorrow. A sale to private equity will possibly offer Rackspace the space it needs to evolve and challenge today’s technology giants, but what is clear is something needs to change.

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