Rackspace Spends IPO Money on Two New Acquisitions

Like Indiana Jones sliding under that descending stone door just as it slams shut, Web hosting company Rackspace Inc. (RAX) was one of the last tech companies to go public back in August before the IPO market sealed up. Indeed, the company was the only VC-backed tech company to go out in the third quarter, raising $187.50 million.

Bad timing. As of Wednesday afternoon, Rackspace shares were trading at $5.01, 60% below the company's $12.50 per share offer price, a level the stock has never touched again.

At least Rackspace isn't just licking its wounds. The company on Wednesday said it would spend as much as $28 million to acquire Slicehost LLC and Jungle Disk Inc., deals that the company says will support its new cloud hosting strategy. Rackspace will pay $11.5 million in cash and stock up front, with an additional $16.5 million hinging on certain performance criteria.

Slicehost provides so-called "Xen virtualization software" to reserve memory and CPU slots. Jungle Disk provides online storage and backup services by leveraging Amazon.com's (AMZN) S3 platform and Rackspace's infrastructure. Rackspace said the acquisitions will help it provide business customers a suite of hosting products. -- David Shabelman

See Aug. 8 post from Tech Confidential
See Oct. 22 press release from Rackspace
See Oct. 22 post from Scobleizer