Rackspace Prepares for Second IPO After $4.3B Private Buyout
Rackspace, the multicloud technology services provider, is making a return to the public markets after being acquired by Apollo Global Management in 2016 for $4.3 billion. The company, which initially went public in 2008, has filed for an IPO with the SEC, signaling its next chapter as a publicly traded entity.
Key IPO Details
- Placeholder Raise: $100 million (subject to change)
- Exchange & Ticker: Nasdaq under the symbol “RXT”
- Underwriters: Goldman Sachs, Citi, J.P. Morgan, RBC Capital Markets, and others
Rackspace’s Business Model
Positioning itself as a multicloud technology services provider, Rackspace helps businesses design, build, and operate cloud environments. This services-centric approach shapes its financial profile, characterized by:
- Revenue: $652.7 million in Q1 2020 (up 7.6% YoY)
- Gross Margins: 38.2% in Q1 2020 (down from 41.3% in Q1 2019)
- Operating Profit: $21.5 million in Q1 2020
Financial Challenges: Debt and Profitability
Rackspace’s balance sheet reveals significant debt obligations:
- Total Debt: $3.99 billion (as of March 31, 2020)
- $2.82 billion term loan (4% interest)
- $1.12 billion senior notes (8.625% interest)
- Cash Reserves: $125.2 million
The heavy debt burden turns operating profits into net losses:
- Q1 2020 Net Loss: \(48.2 million (driven by \)72 million in interest expenses)
- Operating Cash Flow: Positive, but debt remains a major constraint
Growth Trends: A Mixed Picture
- 2017–2018: Revenue grew 14.4% (\(2.14B → \)2.45B)
- 2019: Slight decline to $2.44B
- Q1 2020: Return to growth (+7.6% YoY)
IPO Strategy and Outlook
Rackspace plans to use IPO proceeds to reduce its debt load. However, challenges remain:
- Valuation Uncertainty: Slow growth, high debt, and declining margins complicate pricing.
- Market Conditions: Absence of Q2 2020 results in the filing may delay investor confidence.
The Bottom Line
Rackspace’s return to the public markets highlights its pivot toward multicloud services, but its financial health hinges on debt management and margin stabilization. Investors will watch closely for updated filings and Q2 performance to gauge its IPO potential.
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