Education Management IPO Seen Drawing Attention

When Education Management Corp. shares debut on Friday, nearly two years after the company signaled plans to go public, the offering is expected to be well-received by investors.

Many education stocks have seen gains as the tough economy drives more Americans to bulk up their resumes.

The 47-year-old Pittsburgh-based for-profit provider of post-secondary education under new management has bulked up on its online classes, opened several new locations, improved back-office support systems and consistently posted strong earnings.

Scott Sweet, senior managing partner at advisory firm IPO Boutique, expects Education Management’s offer of 20 million shares to price at the high end of its $18 to $20 range. It is the third higher-education company expected to start publicly trading since November and would become the nation’s second largest publicly traded for-profit school behind Phoenix-based Apollo Group ( APOL – news – people ) Inc.

The market for initial public offerings took a big hit in 2008 amid the recession. A broader recent rally in equities and a sense that investors’ appetites are again whetted for IPOs is prompting a range of companies to go public after long delays, analysts said.

In the education sector, online educator Grand Canyon Education Inc. went public in November, and Bridgepoint Education Inc. followed in April. Grand Canyon shares are up about 75 percent since the debut, while Bridgepoint shares are up nearly 50 percent.

Credit Suisse ( CS – news – people ) analysts said last week that enrollment growth and profit margins should remain at "elevated levels" in the sector for the next few quarters, but warned that regulatory changes could hurt future growth.

Education Management will trade on the Nasdaq Global Market under the ticker "EDMC." the company initial announced its IPO plans in December 2007.

A private-equity group led by Providence Equity and Goldman Sachs ( GS – news – people ) took the company private in June 2006 for $3.4 billion. Shareholders received $43 per share – about tenfold its price the first time it launched as a public company in 1996.

Education Management said it plans to use a portion of the estimated $353.4 million in IPO proceeds from the offering to help repay debt from the 2006 takeover. The company does not plan to offer a dividend for the foreseeable future. It is run by Todd Nelson, the former CEO of Apollo.

Education Management had about 110,800 students overall enrolled as of October 2008. The company said it posted a profit of $104.4 million, or 87 cents per share, in the fiscal year ended June 30, 2009, adjusted for a post-IPO stock split. Its profit grew 58 percent from the previous year. Sales rose 19.4 percent, to $2.01 billion.

"This is a company that could be double the size of where it is today if you look a few years out," said Paul Bard, vice president at Renaissance Capital LLC, an IPO research firm.

Education Management said in an Securities and Exchange Commission filing that the compound annual enrollment growth rate for schools open at least a year was 18.2 percent from July 2006 to July 2009. Its 92 campuses include Argosy University schools; Art Institute schools; and Brown Mackie Colleges. Education Management had 26,200 students in online-only programs as of July 2009.

There are risks in the sector, however. Lawmakers plan to hold hearings on a Government Accountability Office report that said the for-profit school sector’s student-loan-default rate on federal loans was higher than on loans taken out by students attending conventional colleges. The report, which highlighted various holes in regulatory oversight, found that many of the schools admitted unqualified students who had a greater tendency to drop out.


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