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Rackspace Swims Into Rough IPO Waters

August 08, 2008

Mark Stevens, Co-Chair of the Private Equity Group with Fenwick & West, was recently quoted in the E-Commerce Times article entitled, "Rackspace Swims Into Rough IPO Waters."

Rackspace, a provider of enterprise-level managed hosting services, launched its IPO on Friday, ending the day below its opening share price, but winning admiration for its courage. The move may show inherent strength of a company that would move forward in doubtful conditions, but the outcome indicates the investment world is still cloudy.

"The fact that Rackspace went ahead with the IPO is more telling about the company than the IPO market right now, which is widely understood to be dead," said Stevens.

"You have to be a strong company to get out in this market," he told the E- Commerce Times. "It is clearly a brutal market environment with tremendous uncertainty around the economy in general and IT spending, in particular."

Fenwick & West handled the tech industry's last IPO, ArcSight, which raised $61.8 million.

IPOs tend to perform poorly in poor economic times, as they deliver lower-than-expected returns to the investors, Stevens said. "[Rackspace] came out at the bottom end of the range and still traded down. That is not much incentive for future IPO investors—buying in and then registering a loss within an hour."

More IPOs will come to market when the economy begins to recover, Stevens noted, although he was not willing to predict when that magic event will occur. "I can tell you that there are a lot of quality companies waiting in the wings for the economy to improve."

Click here to view the full E-Commerce Times article.