PE-backed Sunlands completes $149m US IPO

The company sold 13 million American Depository Shares at $11.50 apiece, according to a filing, having set an indicative range of $11.50-13.50. The stock opened at $13.13 on March 23 but closed at $11.10 on a day when the Dow Jones Industrial Average slipped 1.77%.

Primavera Capital Group is the largest non-management shareholder with an approximately 12% stake in Sunlands post-offering. It did not sell any shares in the IPO. The private equity firm's voting power is 11.5% due to a multiple-class shareholding structure that favors Peng Ou, co-founder and chairman of Sunlands. He has a 54.2% voting interest.

Orchid Asia committed $30 million to Sunlands through a private placement concurrent to the IPO and now holds a 4.5% stake in the business. Existing investor Chinese test preparation provider New Oriental Education & Technology, which is already listed in the US, put in $10 million to take its holding to 8.2%.

Primavera invested $90 million in the company in August 2017. Matrix Partners China also holds a stake, having participated in a Series A round in 2012.

Founded in 2003 as an offline, classroom-based education business, Sunlands switched to an exclusively online model in 2014. It offers various degree and diploma-oriented post-secondary courses as well as courses that help students prepare for professional certification examinations. The company uses a proprietary knowledge management system to customize notes for teachers and develop course outlines and quiz banks.

China’s post-secondary and professional education market was worth RMB197.8 billion ($31 billion) in 2017 and is expected to surpass RMB355.2 billion by 2022, according to iResearch Consulting. The online segment is projected to grow from RMB33.6 billion to RMB130.1 billion. Most post-secondary education demand is for programs tailored to the Self-taught Higher Education Examination (STE).

Sunlands had 382,805 registered students in 2016, up from 205,806 the previous year, while new student enrolments rose from 179,171 to 188,733 over the same period. Revenue increased 163.4% year-on-year to reach RMB418.9 million in 2016, while the company’s net loss narrowed from RMB318.3 million to RMB253.6 million.

Sunlands is the fourth US listing in six months by a private equity-backed Chinese education business, following Rise Education, RYB Education, and Four Seasons Education. New investment activity in the space is also robust. Last November, Primavera participated in the acquisition of WorldStrides, a US-based provider of study-abroad programs for high school and university students, with a view to supporting expansion in China.

The private equity firm backed Sunlands through its second US dollar-denominated fund, which closed at $1.93 billion in December 2016. Primavera is currently targeting $2.8 billion for Fund III.

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• Topics
• Greater China
• IPO
• Consumer
• PIPEs
• China
• Education
• Primavera
• Matrix Partners
• Orchid Asia Group Management