Amazon in talks to invest in Rackspace: sources

Amazon in talks to invest in Rackspace: sources

Deal would involve Amazon acquiring minority stake in Rackspace

Credit: Amazon / IDG

Amazon is in preliminary talks to invest in U.S. cloud services provider Rackspace Technology, people familiar with the discussion said on Monday.

The deal would involve Amazon acquiring a minority stake in Rackspace, the sources said. Rackspace helps companies migrate their data to Amazon Web Services, and the investment would strengthen the ties between the two companies. Rackspace also migrates companies to Alphabet's Google Cloud, Microsoft Corp's Azure and VMware.

There is no certainty that Amazon and Rackspace, which is majority-owned by private equity firm Apollo Global Management, will agree a deal, the sources said. If there is one, it could take one to two months to negotiate it, the sourced added, asking anonymity because the matter is confidential.

Rackspace and Apollo declined to comment, while Amazon did not respond to a request for comment. Rackspace shares soared as much as 17 per cent on the news.

Rackspace leases server space and helps corporations store and access data in the cloud. It was acquired by Apollo in a $4.3 billion leveraged buyout in 2016, and was listed in the stock market earlier this month. The San Antonio, Texas-based company has market capitalisation of more than $3 billion, almost as much as its debt pile.

Amazon's cloud services is thriving on higher demand from companies switching to virtual offices amid the coronavirus outbreak. Its revenue from Amazon Web Services, which sells data storage and computing power in the cloud, rose nearly 29 per cent in the second quarter to $10.81 billion.

If Rackspace bring in Amazon as an investor, it would be the second Apollo-owned company to secure such a deal with a major technology company this year.

Earlier this month, Google revealed it had picked up a 6.6 per cent stake in ADT for $450 million, betting on the home security company's strong customer base and an army of technicians to drive sales of its Nest devices.

Apollo had acquired ADT in a nearly $7 billion deal in 2016, and still owns a majority stake in the company. ADT shares have risen in value by more than a third since the deal with Google was announced.

(Reporting by Greg Roumeliotis and Krystal Hu in New York; Editing by Nick Zieminski)

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