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Rackspace Is Buying This Rival to Expand Cloud Computing Options

September 11, 2017, 4:18 PM UTC

In a sign of continued consolidation in the IT services market, Rackspace is buying Datapipe, a competitor that also offers business customers several ways to run their technology infrastructures.

Terms of the deal, announced Monday, were not disclosed, although Rackspace CEO Joe Eazor tells Fortune it is the company’s largest-ever acquisition.

The addition gives Rackspace wider geographic coverage in the Asia-Pacific region and Europe—particularly the U.K., where Datapipe fields data centers. It also gives Rackspace more ways to sell high-value migration and other services to large companies.

“Both companies are pioneers in helping form this industry almost 20 years ago,” Eazor says. Together, the companies will offer expertise to help businesses that want to run their workloads in public clouds and massive data centers run by Amazon (AMZN), Google (GOOG), or Microsoft (MSFT), he adds.

Rackspace can also offer managed services from its own data centers, run customers’ IT in on-site at their facilities, or help customers mix and match those models as needed.

Generally speaking, cloud computing is a relatively new form of IT deployment. In the public cloud model, customers use massive data centers run by Amazon, Google, Microsoft, or another large provider. Private cloud refers to a similar flexible model used by one company.

It is fair to say the combined company will see growth opportunities. It is also fair to point out that this move continues a three- or four-year long period in which the biggest public cloud providers got bigger by virtue of massive spending on their own data center infrastructure and smaller players scrambled to stay relevant.

San Antonio-based Rackspace was itself acquired by private equity firm Apollo Global in a $4.3 billion deal just over a year ago. Earlier this year, Rackspace bought Tricore, which specializes in helping customers run key enterprise software from SAP (SAP) and Oracle (ORCL). ABRY, another PE firm, owns a majority stake in Datapipe.

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Datapipe, based in Jersey City, N.J. has been on its own shopping spree. Just over a year ago it acquired Adapt, a U.K. company that helps customers move to the Amazon Web Services (AWS) cloud. That deal followed Datapipe’s purchase of DualSpark, another AWS migration specialist. Prior to that, Datapipe bought GoGrid, a public cloud competitor to AWS and Microsoft Azure.

Datapipe has more of a presence among large companies and so this purchase, along with Tricore, giving Rackspace more traction with bigger Fortune 500 accounts, says Ted Chamberlin, research vice president at Gartner (IT), a market research firm.

Michelle Bailey, group vice president at IDC, agrees: “Datapipe has security solutions and a big government business that will help Rackspace move upstream.”

Eazor said Datapipe’s 800 employees will join 5,900 people already at Rackspace. The two companies will be integrated—Datapipe will not be run as a subsidiary although its government business will continue to operate as it has been, he added.

Neither Eazor or Datapipe CEO and founder Robb Allen would comment on the role Allen will play once the acquisition closes. That is expected to happen in the fourth quarter.

Look for this cloud-computing related M&A to continue. Last week, for example, HPE (HPE), which gave up its own plans to filed an Amazon competitor a year or so ago, purchased Cloud Technology Partners, a Boston-based services company that helps businesses assess and use multiple clouds.

Note: (September 11, 2017, 2:08 p.m. EDT.) This story was updated to add headcount figures for both Rackspace and Datapipe.