Mergers, Acquisitions, and Spin-outs Pave the Way for More Big Shifts in the Cloud Market

A. DeCarlo
A. DeCarlo

Summary Bullets:

• Consolidation is the name of the game in cloud as more providers look to mergers and other moves to redouble their efforts against the better-resourced industry giants AWS, Microsoft and even Google

• Rackspace is following suit, finding a buyer in equity firm Apollo Global Management that will invest more in growing the company which will operate as a private entity outside the scrutiny of Wall Street

With just a handful of cloud providers dominating the market, second tier and tertiary rivals are looking for new ways to compete. For many, consolidation is the route they take in their quest to level the playing field as they face-off against behemoths like AWS and Microsoft.
In quick succession, HP split in two and then announced the merger of its Enterprise Services arm, which includes a significant private cloud business with CSC, itself recently separated from its public sector-focused business. This follows NTT Communications’ March announcement that it is buying Dell’s services unit while Dell itself just closed its $67 billion EMC merger deal this week. And Rackspace, which had originally sought a buyer two years ago to help it bulk up its infrastructure play, finally found a match in Apollo Global Management in August. Add this to a lengthy list of merger and acquisition deals including Oracle’s pending $9.3 billion Netsuite buy and Salesforce’s $2.8 billion DemandWare purchase and the trend is clear: Going it alone is not an option in the cloud where it is all too easy for an under-resourced provider to get lost in the crowd.

Expansion through consolidation is the aim, with providers looking to grow their client lists, enhance their portfolios, and in some cases, bulk up their infrastructures, while also achieving some cost savings through cuts in overlapping operations. Yet in the relatively uncharted cloud, the rate of successful acquisitions is still unknown and the obstacles are many.

As is the case with any acquisitions in any market segment, there is an initial expense associated with merging assets and cutting resources, but the biggest cost may come in a muddled vision when cultures clash and execution falters. In the end, upstart providers are up against even more firmly established leaders, companies with assets to also make purchases of their own.

Which of the recent deals do you give the greatest odds for success? Which are the riskiest? And what do you think the impact will be on customers?

What do you think?

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