Hacker News Reader

Comment by AlexB138 | Hacker News Reader

This is another in a series of layoffs over the last year or two. They've tried to keep them relatively quiet.

They've reimagined the company as providing support on third-party platforms, namely AWS and Azure, instead of focusing on building, selling and supporting their own offerings. That model requires significantly fewer employees. That change, coupled with the buyout, means that there's no surprise in seeing layoffs at Rackspace, and there are likely more to come.

I'm a former Racker.

View on HN

Private equality bought Rackspace out. Layoffs are part of that playbook. They basically pump cash in to grow sales, while cutting costs, so they can chop it up and sell it off for a multiple of what they paid for it.

Worked at a place that was bought out by private equity right at the apex of the tech bubble. As you can imagine, the value of what they paid for dropped like a rock right after the check was cashed. So, like working at a post PE buyout company, only amplified. They had little cash left to pump sales, so all the effort went to cutting costs.

Yes a firm called Apollo Global Management. I have to wonder what their end games is though. Apollo chops up, repackages with other pieces of their portfolio and then sells. I have to wonder where Rackspace fits into that.

> They basically pump cash in to grow sales,

They usually borrow money at really high leverage to buy the company so they risk very little of their own capital. Then they cut anything and everything to minimize costs (and choke off the ability to compete in the future) then dump the carcass(es) on whatever suckers they can find because they made the balance sheet look better temporarily.

Banks line up to lend them money because there is a never-ending supply of suckers and these firms usually manage to find one before the inevitable crash and burn.

So why aren't the sellers before PE and buyers after PE aware of the fact that no value is being added by PE in the interim, and hence sell cheaply and overpay?

Why is it so obvious to you, but not these other people? How does this charade perpetuate? Maybe there is value in there somewhere?

People selling to PE can usually see the writing on the wall, so they're eager to leave with whatever cash they can still get. That makes for low prices.

Buyers always think that they have some insight about the business that can materialise some yet-unrealised potential. You've probably done it yourself a few times, "if only Company X did this and that, instead of what they're doing now -- they'd make loads!". Everyone knows PE don't know how to run businesses beyond the basics, so buyers will always see untapped potential. That makes for high prices.

Why aren't the sellers and buyers meeting directly?

Business owners happy to get a payday, banks happy to loan money to a successful business. PE firms happy to be a middleman.

> They've reimagined the company as providing support on third-party platforms, namely AWS and Azure

To be fair, Rackspace's market cap was only about 4 billion at time of acquisition. They don't really have the capital to get into a war with Amazon, Google, or Microsoft, when data centers cost hundreds of millions/billions to build.

The economies of scale they're fighting against are gigantic, so it makes sense to go towards supporting the clouds of other companies rather than building out their own bare metal.

Absolutely true. They made the right move to survive in the current market. The change will just require some painful adjustments.

It also requires very different types of employees

The sales engineer / presales architect working to design a cross-cloud solution for a customer is a very very different kind of "smart" from the Linux geeks that keep your systems running once they're deployed

Neither is better than the other, mind you - they're just different

I think it is important to note that Rackspace got into AWS and Azure services, because the dedicated physical servers business was dead man walking. While Rackspace did introduce virtualization and other services running on their own hardware, they would never be able to touch Amazon's industry sized scale.

Reply on news.ycombinator.com