Rackspace Confirms $400 Million IPO

Managed hosting specialist Rackspace, Inc. confirmed late Friday that it has filed forms with the SEC for an initial public offering (IPO). The shares will be sold through a "dutch auction" process similar to that used by Google in its 2004 IPO.

The company said the number of shares to be offered and the price range for the offering haven't been determined, but Reuters placed the offering's potential value at $400 million. Goldman, Sachs & Co., Credit Suisse Securities (USA) LLC and Merrill Lynch & Co. will act as joint book-running managers of the offering. Rackspace intends to trade under the symbol RAX on the New York Stock Exchange.

The shares will be sold through a "dutch auction" process similar to that used by Google in its 2004 IPO. "We believe allowing open participation in this offering through a technology-enabled auction process aligns with our corporate culture and business mission," the company said in its SEC filing. Information about the auction will be posted at RackspaceIPO.com

Rackspace said it had revenue of $362 million and net income of $17.8 million in 2007, and ended the year with 29,000 customers and 36,000 servers. The San Antonio, Texas managed hosting company filed to go public in March 2000, only to see the dot-com bubble burst a few months later. Rackspace withdrew its IPO plans in March 2001. Rackspace has raised $39.6 million in equity capital.

The company nearly tripled its employment in two years, growing from 730 to 2,021 employees. The company is in the process of a $100 million renovation of a former shopping mall to serve as its headquarters and data center.

Rackspace was founded in 1996 by three students at Trinity University, Richard Yoo, Dirk Elmendorf and Patrick Condon. Originally called Cymitar Technology, the company became Rackspace in 1998, when Graham Weston and Morris Miller supplied seed capital and joined the company as CEO and COO, respectively.

After withdrawing its IPO in March 2001, Weston and new CFO Lanham Napier shifted the company's focus to cutting costs and making money in a challenging environment. Rackspace reached profitability in 2001.

The company made headlines last November when a data center in Grapevine, Texas lost power. According to the SEC filing, Rackspace extended approximately $3.4 million in credits to customers because of the incident. Rackspace has been among the most reliable providers in the world over the last six years, according to Netcraft, which provides monthly ratings of uptime performance for hosting companies.

Reports of an impending Rackspace IPO have popped up periodically since the hosting market began its recovery. The company recently rebranded and expanded its service offerings. On Thursday TechCrunch predicted an offering was imminent. In addition to its core IT infrastructure services, Rackspace owns a cluster-driven cloud hosting platform (Mosso) and an email service (MailTrust).

Here's a recap of some of our recent reporting on Rackspace: