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San Antonio-based Rackspace Technology announced Friday that the company is going public again.
Rackspace, owned by Apollo Global Management, has filed official documents with the Securities and Exchange Commission proposing an initial public offering (IPO) of the IT service company’s common stock.
The Nasdaq Global Select Market listing will be under the ticker symbol “RXT,” reflecting a recent name change, from Rackspace to Rackspace Technology.
The $2.4 billion cloud services company did not disclose the number of shares that will be offered or the price range.
Bloomberg reported in March 2018 that Apollo was preparing to take Rackspace public in an IPO that could value the company at more than $10 billion. The IPO documents Rackspace filed Friday propose raising $100 million, but IPO research firm Renaissance Capital called that number a “placeholder” and estimated the IPO will raise up to $1 billion.
Launched in 1998 by three Trinity University graduates, Rackspace went public in 2008, opening on the New York Stock Exchange under the ticker symbol “RAX” and raising $187.5 million in its IPO.
Rackspace went private again in 2016 when the company was acquired for $4.3 billion, or $32 a share, by Apollo Global Management and affiliate investors. Graham Weston, Rackspace’s co-founder and chairman, and other directors stepped down as the board was dissolved.
At the time, CEO Taylor Rhodes stated that the terms of the deal gave Rackspace greater flexibility to serve its customer base and grow while maintaining its base of operations in San Antonio. Half a year later, Rhodes resigned, and Apollo named Joe Eazor the new CEO along with a spate of new executives.
Local tech industry observers speculated an IPO would soon follow, and in February 2019, the company began restructuring. In the process, it laid off 200 employees and two months later replaced Eazor with IT veteran leader Kevin Jones, again stoking rumors that Rackspace was preparing for a public offering.
Late last year, the company acquired Onica, a California-based Amazon Web Services consultant and managed services provider, after having brought in Tricore and Datapipe in 2017, and two digital sales entities in 2018.
Those acquisitions and several partnerships led to expanded service offerings and a name change, announced in early June. Prior to the Apollo acquisition in 2016, the company was known as Rackspace Hosting.
On Wednesday, Rackspace publicized a new agreement with Amazon Web Services to widen its offerings globally.
The move is not surprising, said David Heard, CEO of local technology workforce advocacy group Tech Bloc. Many people in the tech community were speculating whether Rackspace’s formal name change to Rackspace Technology last month meant the company was preparing to go public again, he added.
“[The move] toward more remote cloud-based computing and outsourced IT management has always been a megatrend – but it is the trend of the moment in a dominant way right now [because of the pandemic],” Heard told the Rivard Report shortly after Rackspace made the IPO announcement.
“I think from a market-timing standpoint thematically it makes a lot of sense to do it now. The coronavirus pandemic has accelerated existing technology industry trends, he said. “The tailwinds are perfect for any technology companies, including Rackspace, to push forward.”
Tech startups have been rushing to go public in recent weeks as the stock market began to bounce back from a chill brought on by the pandemic in March and April.
In the first six months of 2020, Nasdaq, the high-tech exchange that trades new, high-growth, and volatile stocks, accepted 69 IPOs, outpacing the New York Stock Exchange, according to a Nasdaq report.
As for going private, then public again, that’s fairly unusual for a company, said Jay Ritter, professor of corporate finances at the University of Florida who has studied IPOs since the 1970s.
While it has happened before, such as with Dell in 2018, Ritter said it’s less common for companies to go private after being a publicly traded company today. There are other options now, such as mergers and acquisitions, he said, and often a company that wants to go private does so because it needs time to fix internal issues and become more profitable again.
Occasionally a company will feel it’s profitable enough to return to the public space, as is likely the case with Rackspace. “The conventional wisdom is that while private the company can implement a strategy and become more profitable,” Ritter said.
Heard believes the move is a good one for San Antonio and its tech industry. Rackspace not only has helped attract technology companies to the city but also has spun off numerous startups and developed new tech leadership. Of its 6,800 employees in offices around the world, 2,100 work in the company’s San Antonio headquarters, a converted shopping mall located on Walzem Road.
“Rackspace isn’t just critical for our tech industry here, they’re critical for our city,” he said. “They’re good for San Antonio, and we hope they stay rooted here.”
Disclosure: Rackspace is a Rivard Report business member. For a full list of supporters, click here.