(Reuters) – Amazon.com Inc. is in preliminary talks to invest in U.S. cloud service provider Rackspace Technology Inc., people familiar with the discussion said Monday.
PHILO PHOTO: Signage seen at an Amazon facility in Bethpage on Long Island, New York, USA, March 17, 2020. REUTERS / Andrew Kelly
The deal would mean that Amazon gets 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 Inc’s Google Cloud, Microsoft Corp’s Azure, and VMware Inc.
There is no certainty that Amazon and Rackspace, which is majority-owned by private equity firm Apollo Global Management Inc, will agree a deal, the sources said. If there is one, it may take one to two months to negotiate it, added the sourced, anonymity requested because the case is confidential.
Rackspace and Apollo declined to comment, while Amazon did not respond to a request for comment.
Rackspace shares rose as much as 17% on the news.
Rackspace rents server space and helps businesses store and access data in the cloud. It was acquired by Apollo in a $ 4.3 billion leveraged buyout in 2016, and was announced in the stock market earlier this month. The company in San Antonio, Texas, has market capitalization of more than $ 3 billion, almost as much as its debt pile.
Amazon’s well-being services are booming at higher demand from companies moving to virtual offices amid the outbreak of coronavirus. Revenue from Amazon Web Services, which sells data storage and computing power in the cloud, rose nearly 29% to $ 10.81 billion in the second quarter.
If Rackspace brings Amazon as an investor, it would be the second company in Apollo to secure such a deal with a major technology company this year.
Earlier this month, Google revealed that it had raised a $ 450 million stake in ADT Inc for $ 450 million, betting on the strong security base of the home security company 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 has a majority stake in the company. ADT shares have increased in value by more than a third since the purchase with Google was announced.
Report by Greg Roumeliotis and Krystal Hu in New York; Edited by Nick Zieminski
.
