Rackspace Technology's IPO (initial public offering) surfaced today (Wednesday, August 5) but investors didn't appear impressed. Indeed, Rackspace shares ($RXT) were priced at $21 on August 4, but opened at $16.85 and were trading at $16.18 as of 3:08 p.m. ET on August 5, according to SeekingAlpha.So what went wrong? On the one hand, Rackspace over the past four years or so has transformed into a respected multi-cloud MSP focused on Amazon Web Services (AWS), Microsoft Azure, Google Cloud Platform (GCP) and more.But on the other hand, some of Rackspace's recent growth leaned heavily on M&A deals and supporting those big name third-party clouds. Read between the lines, and Rackspace has some of its own IP -- but the MSP depends heavily on third party public clouds for growth. Moreover, Rackspace has also carried considerable debt under private equity firm Apollo Global Management's ownership.Rackspace's adjusted EBITDA was $742.8 million in 2019 compared to $815.8 million in 2018 and $773.5 million in 2017. The average of those three figures is $777 million in annual adjusted EBITDA over the past three years. At 7X to 12X of that average annual EBITDA, that amounts to an overall Rackspace valuation of $5.44 billion to $9.32 billion -- or just short of the $10 billion valuation that Rackspace investors suggested privately back in 2018. Admittedly, ChannelE2E has offered up a wide valuation range for consideration. But the rough numbers suggest Rackspace will need to achieve a lofty 13X adjusted EBITDA to hit that $10 billion valuation mark. Assuming a successful IPO had climbed to the midpoint of the originally proposed price range, the company’s enterprise value at IPO would have been approximate $8.3 billion, The Street reports. But the actual IPO price -- targeted at $21 per share -- was a bit below that valuation. And now, shares are at the sub-$17 level as the opening day of trading nears a close.
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Rackspace IPO Recap: Multi-Cloud MSP’s Initial Public Offering Disappoints

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