McGraw Hill prices NYSE IPO below range
McGraw Hill secured a less than expected US$415m from its NYSE IPO priced at US$17, two full dollars below the low end of the US$19–$22 marketing range.
Goldman Sachs led a syndicate of 13 banks late on Wednesday in pricing 24.4m shares. BMO Capital Markets, JP Morgan, Macquarie Capital, Morgan Stanley, Deutsche Bank and UBS were additional bookrunners on the offering.
The banks finished five times oversubscribed at pricing and placed 60% of the available shares with just 10 investors and 85% with the top 25. Allocations went mostly to long-only institutions, with anchor demand from mutual funds at the top of the book.
The Platinum Equity-backed online education provider's shares fell below issue to US$16.90 in Thursday's session.
"We expect the debut to be tepid initially,” said IPOX Schuster analyst Kat Liu. “There’s long-term potential, but like other sponsor-backed names, it may take time to build real momentum and shake off the overhang of private equity influence.”
McGraw Hill is using the money from the IPO to repay debt incurred on Platinum Equity's US$4.5bn purchase of the business from Apollo Global Management in 2021.
The IPO attributes McGraw Hill with an enterprise value of roughly US$5.7bn.
Platinum, which did not sell in the offering but is contributing stock to the greenshoe, saw its McGraw Hill stake diluted to 84.6%. While achieving a premium valuation to the priced purchase, the PE firm will need to sell down the 161.5m McGraw shares it still owns to bank a cash profit.
McGraw hoped to divert attention from its buyout pedigree by focusing investors on its artificial intelligence bona fides.
The former textbook publisher has spent roughly US$2bn over the last 10 years transforming its business into an online education platform that uses AI to improve student outcomes.
The investment is paying off. McGraw Hill expects to report adjusted Ebitda of US$185m–$192m on revenues of US$528m–$536m for the second quarter, improving from US$178m and US$523m a year earlier.
McGraw Hill is using the money raised to pay down US$2.8bn of net debt, leaving roughly US$2.4bn and reducing leverage to 3.3 times adjusted Ebitda.