Apollo-Backed Rackspace Raises $704M In Underwhelming IPO

Rackspace Technology, Inc. raised $704 million in its initial public offering Tuesday, pricing the shares at the lower end of its previously indicated range.

What Happened

The Apollo Global Management Inc APO-backed cloud computing firm sold 33.5 million shares priced at $21 each. It had previously indicated a price range of $21 to $24 per share the offering. The issuance was oversubscribed, according to Bloomberg, which earlier reported the news. 

If the IPO underwriters exercise a greenshoe option to purchase an additional 5 million shares, Rackspace's total raised amount would be a little over $809 million. 

The company said it would use a portion of the net proceeds to pay a $600 million debt in the form of Senior Notes due 2024 and use the remainder for general corporate purposes.

Goldman Sachs Group Inc GS investment arm Goldman Sachs & Co. LLC, Citigroup Inc’s C institutional broker Citigroup Global Markets Inc, J.P. Morgan Securities LLC, an investment management company of JPMorgan Chase & Co JPM, along with Apollo Global Securities, served as underwriters for the offering.

Rackspace shares are set to list at the Nasdaq Stock Exchange on Wednesday under the ticker "RXT." Apollo will retain 65.1% of voting power in Rackspace after listing, according to the company’s filings. 

Why It Matters

The cloud computing company’s listing values it at $4.2 billion based on outstanding shares — including debt, cash, and other considerations —  as per filings it made with the United States Securities and Exchange Commission, Bloomberg noted.

The company was taken private in 2016 by Apollo and was valued at $4.3 billion, including debt, at the time.

BlackRock Inc BLK, Fidelity, and Norges Bank Investment Management reportedly hold stakes in the cloud computing company.

The IPO took place in the backdrop of soaring demand for the sector as the BVP Nasdaq Emerging Cloud index is higher by near 70% for the year.

Snowflake, a cloud computing database platform, is expected to priced at nearly $20 billion when it holds its IPO later this year.