Primavera pursues China online education take-private
Primavera Capital Group has submitted a $33.3 million take-private bid for Liulishuo, a China-based operator of an English language learning app. The company's stock has struggled following a recent crackdown on online education platforms in China.
The private equity firm and Liulishuo's three founders are offering to acquire all outstanding shares for $1.13 apiece, according to a filing. The stock has fallen 27% since the regulatory reforms were announced on July 23. It closed at $1.05 on August 5.
Liulishuo would be more accurately described as collateral damage of the crackdown rather than a target of it. The company's services are aimed primarily at adults rather than the K-12 segment, which is expected to be the most severely impacted.
However, it would not be immune to broader action targeting variable interest entities (VIEs), the structures through which overseas investors have traditionally accessed sectors in China where foreign participation is restricted.
Liulishuo leverages artificial intelligence (AI) to deliver customized teaching solutions. It is best-known for interactive courses that feature online games and social activities, enabling users to win points as they move through the levels and communicate with fellow students.
Founded in 2013, the company received seed and Series A funding from GGV Capita, IDG Capital, and Cherubic Ventures. It went to raise $142 million across Series B and C rounds featuring Trustbridge Partners, CMC Capital Group, and Wu Capital. Liulishuo raised $72 million through an IPO in 2018.
As of March, GGV retained an 11.5% interest in the company, while Trustbridge, IDG and CMC owned 11.4%, 9.4%, and 5.7%, respectively. The founders hold a 39.9% interest and a majority voting stake.
Revenue came to RMB972.6 million ($149.1 million) in 2020, down from RMB1 billion the previous year. Over the same period, net loss narrowed from RMB574.8 million to RMB394.8 million. Sales and marketing costs account for nearly three-quarters of operating expenses.
Primavera is in the process of raising its fourth fund, which has a target of $4 billion. Fund III closed on $3.4 billion in late 2019.
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