Rackspace to IPO for $21 per share

As investors continue to warm to the cloud computing market, Rackspace has announced details of its Initial Public Offering (IPO) coming in at the low-end of the target range.

Should the IPO prove to be as successful as one would hope, 33.5 million shares at an IPO price of $21 should bring proceeds of approximately $703.5 million. This might not be the $924.6 million which was being floated through the wires if the underwriters exercise their over-allotment option, but it should still offer healthy returns for Rackspace.

At $21 per share, Rackspace would be valued in the region of $7.6 billion, compared to the $4.3 billion which was spent by Apollo Global Management to take the company private in 2016. At the time, this represented a 38% premium on share price.

At the time of the sale, Rackspace co-founder Graham Weston said the shift to private ownership would allow the company to focus on long-term ambitions without the short-term pressures of investors. Something must have changed during this period, perhaps Apollo is paying attention to the soaring share price of other cloud companies, or it need additional investment to keep pace with rivals.

Kingsoft Cloud is one company to IPO this year, with its share price jumping 63% in the three-month period. Across the cloud computing world there have been some considerable gains; Amazon share price has increased 65% since the beginning of the year, while Google, Microsoft, Dell, Workday and Salesforce are up 7%, 32%, 15%, 8% and 20%, all including a very large declines during the early months of COVID-19.

With such enthusiasm for cloud companies, perhaps Apollo Global Management recognise this as an opportunity to start to profit on the 2016 investment.