More Chinese online education companies are targeting initial public offerings (IPOs) on U.S. exchanges, hoping to get higher valuations amid fierce battles with rivals for new customers.
Warburg Pincus-backed Chinese online tutoring platform, Shanghai Zhangmen Education Technology has decided to hire Morgan Stanley and Credit Suisse Group AG as underwriters for launching its U.S. IPO. The fundraising will seek to raise more than $300 million, local media 36kr reported. Zhangmen didn't comment on the matter.
Raising cash is key for online education companies because the cost of customer acquisition is high and competition intense as new entrants' ramp up, according to analysts.
IPOs in the U.S. market could give online education providers a comparatively higher valuation, unidentified investment bankers told 36kr, even though some online education companies have chosen the Hong Kong market as their first listing.
Meanwhile, Huohua Siwei under the legal name of Beijing Xingengyuan Technology Development, a relative newcomer that joined the sector in 2017 and provides online interactive teaching to small-scale classes of 6-8 students, will also enlist the same underwriters for its U.S. IPO listing, sources said. The company declined to comment.
Ahead of a possible IPO, Huohua Siwei Monday announced to have completed its E3 fundraising round, led by Trustbridge Partners, which closed the more-than-$400 million E1 to E3 fundraising rounds over the past five months. Lighthouse Capital acted as the exclusive financial consultant.
The company currently focuses on children aged 3 to 10. The new funds will be invested into developing more online programs for children aged from 10 to 12 years old, as it seeks to expand its curriculum to provide services from pre-K to grade 12, a Huohua Siwei representative told Business Times.
Business Times reported last October that Huohua Siwei secured $100 million funding, led by Tencent Holdings. The U.S. investment company, the Carlyle Group, also participated the fundraising.
If Zhangmen and Huohua Siwei's IPO plans come through, it would mark a wider reach for Chinese online education companies.
On Dec. 4, Chinese online K-12 tutoring service provider, 17 Education & Technology Group, raised $288 million by offering 27.4 million American Depositary Shares at $10.50 per share. Goldman Sachs (Asia), Morgan Stanley and BofA Securities acted as lead managers on the deal.
Covid-19 has boosted the development of China's online education sector as e-learning has been a primary approach for students during lockdowns. As of last December, Chinese parents ranked average satisfaction scores for online education at 4.36, rising above the 4.28 average satisfaction score for offline education for the first time, according to a survey report conducted by UBS Evidence Lab.
In the first half of 2020, the top ten China-based K12 online education companies have seen a total $13.75 billion in funding, accounting for 95.89% of funds raised.