The push for "better schools" and "better Jobs" hits home for most parents concerned for their children's future. Perhaps it is this universal appeal, which will help garner support for Chinese-based educational services provider, Ambow Education Holdings (AMBO), when it enters the U.S. markets. In the wake of JP Morgan's winning streaking, having recently led two of the most successful IPOs in 2010, based on opening premium, they will once again be taking the reigns with AMBO's 10.7 million ADS offering, expected between $10 and $12.. Each ADS represents 2 Class A ordinary shares and AMBO will be responsible for 70% of the offering, utilizing the proceeds for future expansion initiatives. It will bode well AMBO's IPO, if JP Morgan "is only as good as its last deal" since Green Dot ( GDOT) opened up above $7 and traded higher on its July 22 debut.
Ambow Education Holding - AMBO
Lead underwriter: JP Morgan
Offering: 10.68 million shares
Current price range $10 to $12
Deal size to the mid-range: $117.4 million
Market cap to the mid-range: $784.1 million
Sector: schools and educational services
While we expect a more muted market response for this upcoming IPO, AMBO offers a growth-oriented business model with an established market share, assuming investors can stomach a foreign IPO in this environment. There may be some short-term concerns as AMBO finalizes the adoption of its new sales model, but the potential for growth in the Chinese education industry should provide support for a modest open, followed by stabilized trading levels in the aftermarket. Originally, AMBO provided its learning aids to students that enrolled in partner schools. While this may have generated strong revenues, gross margins suffered under this business model, as it was very capital-intensive to provide continued support once the product was delivered. Management had the foresight to realize there was a better way to use its proprietary technologies and has spent the last two years transitioning to its new sales model to provide "educational programs and services to students of its directly-operated schools and centers." Moreover, it now sells its software products through distributors to minimize long-term obligations, thus generating higher gross margins. Through various acquisitions, AMBO has amassed a network of regional service hubs, which currently consists of five K-12 schools, 96 tutoring centers, 2 colleges and 16 career enhancement centers, serving 30 of the 31 provinces in China. All of this breaks down into four operating segments within 2 business divisions.