Twelve years after first going public, Rackspace Technology has returned to the NASDAQ with more of a whimper than a bang. It has raised $704m, the vast majority of which will be used to pay down debts owed to its private equity backer.
The multi-cloud slinger priced the US IPO at $21 per share – the lower end of the marketed $21-$24 range, listing 33.5 million shares. Rackspace also granted underwriters a 30-day option to slurp up to an additional 5.025 million shares of common stock for the same price.
"Rackspace Technology intends to use a portion of the net proceeds from the offering to redeem, retire or repurchase $600 million aggregate principal amount of its outstanding 8.625 per cent Senior Notes due 2024 and to pay related premiums, fees and expenses," the company reiterated.
The remaining sum will be used for "general corporate purposes", it added.
Backed by Apollo Global Management, Rackspace is valued in the listing at $4.2bn, lower than the $4.3bn that its parent paid to take the company private when it bought shares at $32 a piece.
"This is not the most glorious of returns to the public market for Rackspace," said Philip Carse, chief analyst at Megabuyte. He said that despite the "buy and build" activity as a privately owned business – it bought Datapipe for $1.39bn – Rackspace was making similar earnings prior to Apollo's purchase.
The planned IPO was first mooted in July and the timing – in the middle of a pandemic – was interesting, perhaps spurred on by the massive demand for cloud services coming from businesses whose workforce have been locked down for parts of this year.
Charles King, founder of analyst Punt-IT, told us last month that the current work-from-home dynamics may continue for the next few quarters, but "it's hard to see it supporting a long-term growth strategy". He also pointed out that competition is furious between cloud providers.
Rackspace designs and runs cloud platforms, recently signing a deal to make AWS its preferred cloud provider. The company has 120,000 customers situated across 120 countries, and in Q1 reported a loss of $48.2m, lower than the $57.5m posted a year earlier. Sales came in at $652.7m, up from $606.9m. ®