McGraw Hill IPO: shares of education legend with a focus on EdTech become available

Shares of education company McGraw Hill became available to investors on July 24 on the Freedom trading system under the ticker MH. Founded in 1888, the organization has come a long way from a traditional textbook publisher to one of the largest providers of digital EdTech solutions. The organization will be listed on the New York Stock Exchange in the coming hours.

McGraw Hill offered shares at $17 apiece, $2 cheaper than the lower end of its stated price range ($19-22). It sold 24.39 million shares and raised about $414.6 million in gross proceeds, or $386 million net. At the end of the offering, McGraw Hill's market value was $3.2 billion, based on the number of securities outstanding, Bloomberg calculated.

The listing was organized by Goldman Sachs, BMO Capital Markets, JPMorgan, Macquarie Capital, Morgan Stanley, Deutsche Bank Securities and UBS Investment Bank.

Today, McGraw Hill Publishing relies on digital educational technologies. The company's portfolio includes an AI-enabled math learning platform and an AI Reader trained to work with educational materials. 65% of McGraw Hill's revenue comes from digital products. Its paid digital users reached 26 million in the fiscal year ended March 31.

The company is the second largest provider of print and digital learning solutions in the U.S. higher education market, covering 82% of all colleges and universities in the country. McGraw Hill's revenue for the year increased by 7%, while its losses were cut in half. It plans to spend the IPO proceeds on deleveraging and technology development.

Notably, the placement took place nearly 13 years after the textbook publisher was bought by Apollo for $2.5 billion. It had already attempted to bring McGraw Hill back to the stock market in 2015, but later sold it to another investment firm, Platinum Equity, for $4.5 billion in 2021.

Based on the industry average multiple of 3.41, which reflects the price-to-sales ratio, the estimated value of McGraw Hill's business is $7.2 bln, Freedom Broker analyst Alem Bektemirov estimates. Taking into account the debt load and the amount of cash, the target price of the company's shares is slightly under $23. This implies a growth potential of about 35%.

Bektemirov cited competition in the market, changes in state academic standards and warned to keep an eye on how the company attracts new clients in the U.S. among the top risks to the business.

McGraw Hill's stable but moderate financial performance isn't enough to consider the company a dynamic growth company, notes Donovan Jones, head of IPO Edge's analyst group. Against the backdrop of the digital education boom, McGraw Hill's pace appears subdued. While strong domestically, it remains geographically constrained, with 81% of revenue coming from the US. This increases the risks associated with changes in government funding, the analyst points out.

At the same time, the strategic vector is logical: global expansion, the introduction of AI and entering the retraining market are all in line with the global trend towards lifelong learning.

Jones also points out that McGraw Hill remains under the control of a private investment entity. This may limit the influence of minority shareholders and lead to management decisions that are not always in line with the interests of retail investors.

Relatively high interest rates, prolonged inflation and ongoing geopolitical instability have put pressure on private equity funds (PE funds) to seek liquidity by going public. These factors contributed to the accumulation of a sizable pool of "IPO-ready" companies whose offerings were delayed in anticipation of a more favorable environment. Now, with investor interest reviving, more such players are entering the market, according to Reuters. 

Thus, on July 23 the shares were floated by NIQ Global - one of the world's leading providers of solutions in the field of consumer analytics and trade audit. The company is owned by the Advent International fund. Its listing went closer to the lower end of the price range, and on the debut day of trading, the stock collapsed by almost 10%;

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Freedom clients will be able to trade in McGraw Hill shares before the opening of the main exchange session. Trading will begin in the early pre-market format 2-3 hours before the opening of the US exchanges (from 15:30-16:30 Astana time). To participate, click on the ticker MH.

This article was AI-translated and verified by a human editor