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.

AMBO's Better Schools division, which encompasses its K-12 programs and its tutoring centers, is focused on "enhancing academic results" and providing a competitive advantage for admittance into top universities.

The Better Jobs division is centered on AMBO's colleges and career enhancement centers, with the main objective being job placement into high-growth industries for its students.

Obviously, this is a stripped-down version of what AMBO is about, since all education providers would share this mission.

However, in fiscal 2009, AMBO had an established market share of 16%, placing it as the largest career enhancement-training provider in China. By partnering with global leaders such as Cisco ( CSCO) and McGraw-Hill ( MHP), AMBO has been able to streamline its services and benefit from the recent trend towards outsourcing,, as new companies enter China and create an increase in hiring demands.

AMBO has undergone a rapid, inorganic expansion since taking the leap to directly own its schools in 2008. While this shift has paid off, as shown by a 77.4% year-over-year top line improvement in fiscal 2009, it is still dealing with some growing pains.

Bottom line results have remained in the red, due to preferred share expenses, but AMBO has been able to maintain relatively low debt levels, considering its aggressive acquisition strategy.

After the IPO, the charges from preferred shares will become a thing of the past, but if the first quarter results of 2010 are any indication, there are still some challenges ahead. Even before these charges, net income declined 81.8%, on a year-over-year basis, in part due to acquisitions and the transition from the old sales model.

Going forward, AMBO plans to continue this expansion rate, increasing from 16 to 25 regional hubs in its Better Schools division over the next three to five years. For its Better Jobs division, AMBO plans to infiltrate two additional high growth industrial areas, establishing career enhancement hubs in these areas over the next three years.

While these growth initiatives should be an encouraging sign of what's to come, it may put pressure on short-term results. The proceeds from this IPO will be a start, but once AMBO is in the public markets, investors can expect the company to issue additional shares in future secondary offerings, creating discouraging dilutitive pressures.

Despite some integration concerns, management has proven its ability to provide an innovative approach to the meet the growing needs of the educational and career markets in China.

While we see value in AMBO's business model, there are inherent risks with its inorganic growth-oriented business model and investors may shy away from an Chinese-based company which is still trying to find its footing.

However, it is this "emerging" industry status, which may appeal to the investor willing to hold onto AMBO for the longer term and with a relatively stable trading range expected in the aftermarket, there should be no shortage of buying opportunities.

IPOfinancial.com in Millburn, N.J., is the oldest equity new issues research firm on the Street, with 20 years of experience. IPOfinacial projects the opening premiums of IPOs and secondaries before they price. Its research packages are available to individual investors and institutions alike.

More from Opinion

Elon Musk's Latest Twitter Tirade Is the Dumbest Thing on Wall Street

Elon Musk's Latest Twitter Tirade Is the Dumbest Thing on Wall Street

Elon Musk's Twitter Tirade Is the Dumbest Thing on Wall Street

Elon Musk's Twitter Tirade Is the Dumbest Thing on Wall Street

Why Google's Search Momentum Won't Be Badly Hurt by New EU Rules

Why Google's Search Momentum Won't Be Badly Hurt by New EU Rules

Flashback Friday: Amazon, Chip Stocks, Memorial Day

Flashback Friday: Amazon, Chip Stocks, Memorial Day

Time to Talk Tesla: What Happened This Week, Elon?

Time to Talk Tesla: What Happened This Week, Elon?