IPO Watch: ChinaEdu

Ann C. Logue | Dec 04, 2007 6:20am EST | 1 Comment

Rating:

ChinaEdu
www.chinaedu.com
(Nasdaq: CEDU)
Scheduled for Dec. 10
$52.4 million estimated proceeds
$214.3 million post-money valuation

Education companies have made popular IPOs in recent months and so have Chinese companies. ChinaEdu is the logical extension — an education company based in China. Talk about the bankers being on top of trends. ChinaEdu provides online programs to supplement the offerings at several Chinese universities, operates its own private online K-12 tutoring company and private elementary schools, and offers online English courses to Chinese speakers no matter where they are.

China has a high rate of basic literacy, and many Chinese people know that they need even more education to compete in a rapidly industrializing nation and a global economy. Hence, they are willing to pay extra to educate themselves and their children. ChinaEdu was formed in 1999 to provide online services at Renmin University of China. The core business contracts with campuses rather than directly with students, but acquisitions into the tutoring, elementary and vocational educational markets have brought ChinaEdu face to face with the students who use its services.

The proceeds of the deal will be split between general corporate use and capital spending, including opening a network of learning centers and construction at a private elementary school and at a language school. Some of the venture capital firms are reducing their ownership, but not all are. After the IPO is priced, the officers and directors will own about a quarter of the company and three venture investors, Tiger Global, Qing Li and The McGraw-Hill Companies, will own about another quarter. (McGraw Hill, of course, has a huge interest in education through its textbook divisions.)

ChinaEdu makes good money. In 2006, it had revenue of US$28 million and net income of US$3.4 million. For the first half of 2007, U.S. dollar revenue was $15.8 million and net income was $1.6 million. Revenue in RMB increased by 69% between 2005 and 2006 and 24.4% between the first half of 2007 and the first half of 2006. The growth rate may slow down slightly as the company makes fewer acquisitions and draws more students from less-affluent parts of China, but the long-term trend is great. Education is key to modernization and China is modernizing faster than any place else on earth.

Recent IPOs:

SuccessFactors (www.successfactors.com; Nasdaq: SFSF; Nov. 19; $503.3 million post-money valuation): No, this isn’t the company that makes the annoying office posters—that’s Successories. SuccessFactors, instead, is a consulting firm that develops and manages pay-for-performance compensation systems. Among its customers are American Airlines, Kimberly Clark, and Lowe’s Companies. SuccessFactors lost $32 million in 2006 on sales of $32.5 million. None of the officers, directors, or venture capitalists sold on this IPO, which is a good sign. The proceeds will be used to repay $10.4 million in outstanding debt and to fund continuing operations.

Rubicon Technology (www.rubicon-es2.com; Nasdaq: RBCN; Nov. 15; $263.3 million post-money valuation): Rubicon’s products are used to make crystals for light-emitting diodes (LEDs), radio-frequency integrated circuits and blue lasers, among other things. It’s sophisticated technology that’s growing in demand; LEDs, for example, use less energy and are more compact than other forms of lighting. (Don’t believe me? Compare your current computer monitor to the one you had five years ago.) The IPO gave the company money to continue operations. It is close to profitability, generating a net loss of $0.8 million on $24.6 million in sales for the nine months ending Sept. 30, 2007.

Upcoming IPOs:

Classmates Media (www.classmates.com; Nasdaq: CLAS; Dec. 10; expected to raise $117.7 million; post-money valuation of $660 million): Want to find out what your high school classmates are up to? It will cost you $5 per month. Classmates.com offers social networking with a twist: the people in your network are all people you knew way back when but lost touch with over the years. It’s great fun if you are planning a reunion, looking for love, or just plain curious. And it made $1.7 million on $140.1 million in revenue in the first nine months of 2007. About $50 million of the proceeds will go to repaying debt. The company will continue to be controlled by United Online, an operator of different websites.

K12 (www.k12.com; NYSE: LRN; Dec. 10; expected to raise $67.4 million; post-money valuation of $500.4 million): K12 offers online elementary and high school education to homeschoolers and through school systems looking at alternatives for students who live in remote areas or who have trouble adjusting to a regular classroom. Some of its software products are also useful in a regular classroom. The primary reason for the offering is to let venture capitalists get some money. For the year ended June 30, 2007, K12 had net income before preferred dividends of $3.9 million on $140.6 million in revenue.