Consonus IPO Has Too Many Cons

IPO investors who didn't like Rackspace (RAX Quote) should take a close look at its rival Consonus Technologies.

It may make them feel better about Rackspace.

Consonus was expected to debut on the Nasdaq two weeks ago, but a turbulent stock market and a rocky listing for rival Rackspace gave underwriters pause. The company is now looking to list its stock in the next couple of weeks with the ticker DCTI.

It's been a long road for Consonus. The Cary, N.C.-based company first filed for an IPO back in May 2007, aiming for a fall offering of 6 million shares priced between $7 and $9 each. In June 2008, it revised its offering down to 3 million shares priced between $8 and $10. The overall amount raised in the offering would be reduced to a midpoint of $27 million from the originally hoped-for $48 million.

Like Rackspace, Consonus is in a thriving area. The market for Web-hosting of IT services is seeing strong growth, as is the technology consulting that Consonus also offers. The breadth of Consonus' services is broad enough to compete with giants like IBM (IBM Quote), Hewlett-Packard (HPQ Quote) and EDS (EDS Quote).

Unlike those giants, Consonus focuses on companies with 300 to 2,000 people as well as universities. Its clients include shipping company Maersk, software company Red Hat (RHT Quote), Blue Cross Blue Shield Association and Johns Hopkins University.

Over the past year, while Consonus has languished in the IPO queue, its valuation seems to have shrunk dramatically. Last September, Consonus said an offering would leave 10.5 million shares outstanding. At the proposed $8 a share, that's a valuation of $84 million. After a reverse stock split in January, Consonus will have only 6.2 million shares outstanding after an IPO. At $9 a share, the company is now valued at $55 million.