Analyst: Rackspace merger would create managed hosting powerhouse

Sep 9, 2014
Austin Business Journal

A merger with Rackspace Hosting Inc. would immediately vault CenturyLink Inc. to the top of the managed services hosting market, according to analysis by Frost & Sullivan

The market analysis firm’s research currently has San Antonio-based Rackspace ranked No. 1 in terms of market share based on revenue followed by Verizon Communications at No. 2 and Century Link at No. 3. Earlier Monday, Bloomberg reported that CenturyLink was considering a move to acquire Rackspace, while Barron's noted that two heavyweight investors have recently loaded up on Rackspace shares

“CenturyLink already has a strong foothold in the market,” says Roopashree Honnachari, an analyst with Frost & Sullivan who follows the cloud computing industry. “Combining these two companies would create a strong competitor in the managed hosting space.”

Rackspace, which has a significant Austin presence, is shifting 570 employees into the former Dillard's location at Highland Mall operated by Austin Community College

Honnachari says both companies have a focus on the high-touch, premium services segment of the hosting market. Rackspace helped to pioneer that segment from the beginning, while CenturyLink became a player following its acquisition in 2011 of Atlanta-based Saavis

CenturyLink also became the third-largest telecom company in the U.S. in 2010 after completing an acquisition of Qwest, which in turn had gobbled up former Baby Bell company USWest in 2000

If the rumored acquisition goes through, Honnachari says it is unlikely that CenturyLink would try to move Rackspace, which is already well established in San Antonio and Austin. But it would most likely roll the company up with its Saavis division — which it is currently rebranding as CL Tech Solutions

Whether the sale goes through, however, is anyone’s guess, Honnachari says

Technology investor and commentator Ben Kepes, writing in Forbes, says there are other complications that could trip up a merger deal

Rackspace recently announced a renewed focus on providing support-based cloud services to the market amid the swirling speculation about a possible buyout of the company. The company announced earlier this year that it was looking at “strategic proposals” and had retained the services of investment banker Morgan Stanley to evaluate the proposals and explore any other alternatives

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