Caixin
BUSINESS & TECH

Education Firm Puxin Plans Major Expansion Push After U.S. IPO

Puxin Ltd., the third Chinese education company to float shares in the U.S. this year, plans to use the bulk of its initial public offering (IPO) proceeds to aggressively expand by buying up dozens of smaller rivals in the country.

China’s third-largest after-school tutoring service provider saw its share price soar 23.5% to close at $21 in its debut on the New York Stock Exchange on Friday, up from its listing price of $17.

The uptick came despite a report from short-seller Muddy Waters a few days earlier accusing another Chinese education company, TAL Education Group, of inflating its profits.

Puxin aims to use 70% of its initial public offering proceeds — or more than $80 million — to acquire around 100 smaller education service operators in the country by the end of next year, Chief Financial Officer Wang Peng said.

Puxin floated around 7.2 million American depositary shares on Friday, raising more than $120 million.

The tutoring provider is “in the final stages of talking to relevant targets,” as it seeks to boost its market share in China, Wang told Caixin by phone from New York on Saturday.

“The Chinese after-school tutoring sector is a multibillion-dollar market,” he said, adding that it will remain fragmented during the next five years and beyond, as the large and growing size of the market leads to an increasing number of new competitors, spurred on by rising demand from “tiger dads and moms” who wish nothing but the best education for their children.

China’s after-school education market is projected to grow to 805 billion yuan ($125 billion) in 2022, up from just over 480 billion yuan in 2017, according to market research consultancy Frost & Sullivan.

As of the end of last year, there were more than 100,000 after-school tutoring service providers in China, with the top five players commanding less than 4% of the market by revenue, according to the consultancy.

“Many service providers operate a limited number of learning centers, often at a loss, and lack the scale or management expertise necessary to invest in curriculum development, instructor training and technology,” Puxin said in its IPO prospectus.

Despite being a relative latecomer to the market, Puxin has leaped to the No. 3 spot in terms of student enrollments by aggressively acquiring 48 other operators since its founding in 2014. This helped the company build its current network of nearly 400 learning centers in 35 Chinese cities.

Puxin will continue to pounce on attractive expansion targets as it has “strong acquisition and integration expertise to effectively improve education quality and operational performance of acquired schools,” it said.

Puxin’s expansion model is reminiscent of that of another educator, Ambow Education Holding Ltd., which was forced to delist in the U.S. in 2014, four years after its IPO, as kickbacks and other scams pushed it into insolvency.

The Beijing-based operator had bought up 30 rival schools before its IPO. It relisted on the smaller-cap NYSE American stock exchange early this month.

Contact reporter Jason Tan (jasontan@caixin.com)

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