April 27th, 2008
Posted in Job Update: Rackspace Files IPO, Will Set Price Via Auction
Hosting provider Rackspace filed for an initial public offering
with the SEC last night, as we predicted it would. The company will try to raise $400 million, and it intends to set the IPO price through an auction, much like Google did. The underwriters are Goldman Sachs, Merrill Lynch, Credit Suisse, and WR Hambrecht & Co. (the leading proponent of such IPO pricing). Pricing through an auction is designed to make sure the company raises the most money possible instead of giving up a first-day pop to investors who are allocated shares by the investment banks doing the deal. Shares will still be allocated to such clients, but anyone who bids beforehand in the auction at or above the eventual IPO price will also get shares. All in all, it is a much more efficient way to price an IPO and more companies should do it.
I’m not surprised, rumors have been batted around since I left Rackspace, but it is still interesting.
I suspect the biggest reason that RS needs to raise the cash is because of their tax abatement agreements with Windcrest and the state. If I remember right they have promised something like 4,000 employees in a rather short amount of time. The extra cash raised by an IPO would most likely be a part of that plan.
I wish them luck and hope that Fanatical Support doesn’t get replaced with Fanatical Dividends.