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Rackspace preps IPO after going private in 2016 for $4.3B

Rackspace preps IPO after going private in 2016 for $4.3B
After https://techcrunch.com/2016/08/26/rackspace-to-go-private-after-4-3b-acquisition-by-private-equity-firm-apollo/]going private in 2016 after accepting a $32 per share, or $4.3 billion, price from Apollo Global Management, Rackspace is https://www.sec.gov/Archives/edgar/data/1810019/000119312520190902/d915709ds1.htm#fin915709_9]looking once again to the public markets. First going public in 2008, Rackspace is taking second aim at a public offering around 12 years after its initial debut.
The company describes its business as a “multicloud technology services” vendor, helping its customers “design, build and operate” cloud environments. That https://crunchbase.com/organization/rackspace]Rackspace is highlighting a services focus is useful context to understand its financial profile, as we’ll see in a moment.
But first, some basics. The company’s S-1 filing denotes a $100 million placeholder figure for how much the company may raise in its public offering. That figure will change, but does tell us that firm is likely to target a share sale that will net it closer to $100 million than $500 million, another popular placeholder figure.
Rackspace will list on the Nasdaq with the ticker symbol “RXT.” Goldman, Citi, J.P. Morgan, RBC Capital Markets and other banks are helping underwrite its (second) debut.

Financial performance
Similar to other companies that went private, https://techcrunch.com/2020/06/24/dells-debt-hangover-from-67b-emc-deal-could-put-vmware-stock-in-play/]only later to debut once again as a public company, Rackspace has oceans of debt.
The company’s balance sheet reported cash and equivalents of $125.2 million as of March 31, 2020. On the other side of the ledger, Rackspace has debts of $3.99 billion, made up of a $2.82 billion term loan facility, and $1.12 billion in senior notes that cost the firm an 8.625% coupon, among other debts. The term loan costs a lower 4% rate, and stems from the initial transaction to take Rackspace private ($2 billion), and another $800 million that was later taken on “in connection with the Datapipe Acquisition.”
The senior notes, originally worth a total of $1,200 million or $1.20 billion, also came from the acquisition of the company during its 2016 transaction; private equity’s ability to buy companies with borrowed money, later taking them public again and using those proceeds to limit the resulting debt profile while maintaining financial control is lucrative, if a bit cheeky.
Rackspace intends to use https://crunchbase.com/organization/ipo]IPO proceeds to lower its debt-load, including both its term loan and senior notes. Precisely how much Rackspace can put against its debts will depend on its IPO pricing.
Those debts take a company that is comfortably profitable on an operating basis and make it deeply unprofitable on a net basis. Observe:

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