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This article has been updated.
Rackspace Technology, the locally headquartered cloud services company owned by Apollo Global Management, announced terms for its initial public offering (IPO) Monday morning.
Planning to list on the Nasdaq under the symbol RXT, Rackspace expects to raise between $705.7 million and $812.9 million in net proceeds – with aims of raising at least $754 million – by offering 33.5 million shares at a price range of $21 to $24.
Rackspace has granted its financial backers an option to purchase up to an additional 5 million shares at the IPO price within 30 days. The IPO has the potential to raise as much as $924.6 million.
Should Rackspace’s IPO prove successful, Apollo Global would possess a majority of the voting power, keeping as much as 65.1 percent of the shares.
Lead underwriters include Goldman Sachs, Citigroup, and JPMorgan, which are also acting as representatives for all 14 backers.
Earlier this month Rackspace formally announced the company is going public again by filing an S-1 registration form with the Securities and Exchange Commission (SEC). An S-1 is the initial registration form required by the SEC for public companies based in the U.S. As of publication, Rackspace had not yet disclosed the number of shares offered or the price range.
This will not be Rackspace’s first time going public; the company went public in 2008, opening on the New York Stock Exchange under the ticker symbol RAX and raising $187.5 million. Rackspace went private in 2016 after it was acquired for $4.3 billion, or $32 a share, by Apollo Global Management and affiliate investors.
Bloomberg reported in March 2018 that Apollo was preparing to take Rackspace public again in an IPO that could place the company’s value at more than $10 billion.
Estimates show Rackspace could draw an enterprise value of $8 billion with a price per share of $22.50, according to IPO research firm Renaissance Capital.
Rackspace was founded in 1998 by three Trinity University graduates.
When it was purchased in 2016 after about eight years on the New York Stock Exchange, Apollo and its affiliates changed the company’s name from Rackspace Hosting to simply Rackspace.
Then-CEO Taylor Rhodes said going private gave Rackspace the ability to play to its strengths and refocus its goals. Half a year later, however, Rhodes resigned, and Apollo named Joe Eazor the new CEO. Eazor was replaced by IT veteran Kevin Jones just two years later.
In February 2019, the company began restructuring, with many local tech leaders speculating an IPO would soon follow. In the process, Rackspace laid off 200 employees.
Late last year, Rackspace acquired Onica, a California-based Amazon Web Services consultant and managed services provider. The company had acquired Tricore and Datapipe in 2017, as well as RelationEdge in 2018, again stirring rumors of an impending IPO.
These acquisitions allowed Rackspace to widen its service offerings, which prompted another name change, according to a statement issued by Rackspace. Earlier this month, Rackspace publicized a new agreement with Amazon Web Services to expand globally.
According to the amended S-1 filing, as of March 31, Rackspace had $3.9 billion of outstanding indebtedness, $3 billion of which it attributes to being acquired. Rackspace is hoping to capitalize on the uptick in cloud tech usage that has been spurred forward by the coronavirus pandemic.
“The COVID-19 pandemic has accelerated cloud transformation efforts for new and existing customers and underscored the importance and mission-critical nature of multicloud strategies,” Rackspace stated in the filing. “Over the last several months, customers have increasingly turned to multicloud solutions to pivot to new business models and save costs.”
According to the latest Gartner Forecast, the managed services and cloud infrastructure services market is estimated to be $410 billion worldwide in 2020 and is expected to grow 7 percent annually to $502 billion by 2023.
Rackspace noted in the filing that there are “risks and uncertainties” potential investors should “carefully consider before deciding to invest in our common stock,” including that the company has a history of losses and may not be able to achieve profitability in the future, and that it might not be able to “compete successfully against current and future competitors.”
“We incurred net losses of $59.9 million, $470.6 million, and $102.3 million” in fiscal years 2017, 2018, and 2019, respectively, Rackspace wrote in its IPO filing.
Rackspace competitors include Accenture, Atos, CapGemini, Cognizant, Deloitte, DXC Technology and IBM.
Rackspace is profitable on an operating basis, said David Heard, CEO of local technology workforce advocacy group Tech Bloc, but the company’s roughly $4 billion in debt keeps them unprofitable on the whole.
“A large slice of this debt is actually tied to the original purchase by Apollo. The rest is largely tied to acquisitions since,” Heard said. “I’m not sure this current IPO offering – with Apollo retaining ownership control – will raise enough to become net-profitable, but with debt tied to innovation and acquisitions to grow future revenue, I’m not sure short-term net profitability is the goal.”
Correction: This article has been updated to correctly identify Rackspace’s competitors.