IPO Preview: Laureate Education Is Not An Educated Buy

| About: Laureate Education (LAUR)
This article is now exclusive for PRO subscribers.


LAUR filed an S-1/A with the SEC for its upcoming IPO, intending to sell 29 million shares at a marketed price range of $17 to $20.

LAUR has an additional 4.35 million shares as an over-allotment option for its underwriters.

Despite impressive revenue figures and a strong recent swing to profitability, LAUR's IPO process has revealed some problems.

LAUR has a debt of more than $4 billion, and its former chief accounting officer filed a whistleblower complaint against the company.

We are hearing the deal is covered with some price sensitivity at the low-end of the range. We recommend that investors pass on this IPO.


Laureate Education, Inc. (NASDAQ:LAUR) filed an S-1/A with the Securities and Exchange Commission, signaling that the company is ready to move forward with its initial public offering. The company plans to sell 29 million shares at a marketed price range of $17 to $20. This means that the company is looking to raise just over $500 million in its IPO. It has an additional 4.35 million shares as an over-allotment option for its underwriters.

The joint book-running managers for the IPO are Credit Suisse, Morgan Stanley, Barclays, Macquarie Capital, J.P. Morgan, BMO Capital Markets, Citigroup and Goldman Sachs & Co. The co-managers for the IPO are, Baird, Barrington Research, Piper Jaffray, Stifel, William Blair, Bradesco BBI and BTG Pactual.

Business overview

Laureate Education, Inc. is a for-profit higher education company that operates universities in 25 countries around the world. It previously was a public company from 1993 to 2007 before being taken private. The company states that it is the largest company that offers higher education. It has more than 1 million students enrolled in its network of 71 universities.

Executive management overview

The chief executive officer and chairman of Laureate Education, Inc., Douglas L. Becker has served in those roles since Feb. 2000. He also served as the company's president from June 2011 until Sept. 2015. From April 1994 until Feb. 2000, Becker was the co-chief executive officer and president of Laureate Education, and he has been a director since Dec. 1989.

Enderson Guimarães has served as the president and chief operating officer of Laureate since Sept. 2015. Prior to that, he served in multiple executive-level roles at PepsiCo Inc., including as the chief executive officer of PepsiCo Europe from Sept. 2012 to Sept. 2015. Before that, he was the chief executive officer of the major appliances division of Electrolux from 2008 to 2011. Before that, Guimarães spent 10 years working in a variety of capacities at Philips Electronics, leaving as a senior vice president. Guimarães has a Master of Business Administration from McGill University and a Bachelor of Science from the Aeronautical Institute of Technology in São José dos Campos, Brazil.

Financial highlights and risks

For the nine-month period that ended on Sept. 30, 2016, Laureate Education reported it earned total revenues of $3.068 billion. During the same nine-month period that ended on Sept. 30, 2015, the company had total revenues of $3.141 billion. The company reports that its total revenues for the year ending on Dec. 31, 2015, were $4.21 billion. During the nine months that ended on Sept. 30, 2016, the company reported it had a net income of $327,722,000. During the same time period in 2015, it reported a net loss of $299,581,000.

Laureate has a substantial level of debt, which totals more than $4 billion. The company intends to use the proceeds of its IPO to pay down some of its debt. It recently conducted a funding round, raising $383 million through a private offering of the company's preferred stock.

The company has also faced multiple challenges. According to its SEC filings, the former chief accounting officer of Laureate filed a whistleblower complaint against the company, alleging that Laureate violated SEC regulations. It is also investigating reports of corruption involving one of the company's Turkish universities.

Conclusion: Consider Holding Off

While Laureate Education has demonstrated strong but declining revenues and went from a substantial net loss in 2015 to a significant net income in 2016, the company's high debt level and potential problems with the whistleblower complaint and the potential corruption at one of its universities give us pause.

We recommend that investors hold off on this IPO and wait to see the outcome of those potential major problems. We would not be surprised to see this puppy price at the low-end or below the marketed price range of $17 to $20.

Don Dion's IPO Insights provides up-to-date information and analysis on the major IPOs each week, along with additional opportunities to invest and short these stocks at their quiet period and lockup period expirations, respectively. Consider following us at the link above. We will continue our PRO offerings on Seeking Alpha alongside our more exclusive research.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in LAUR over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.