China Daily Global Edition (USA)
Puxin’s M&A deals shake up tuition market
Puxin, a Chinese afterschool tuition provider, made its debut on the New York Stock Exchange on July XX, making it the country’s third-largest education company to be listed on Wall Street.
The Beijing-based platform is also the first??? of four Chinese education companies that submitted applications for an initial public offering to the US bourses this year. Its IPO application was followed by those of Sunlands Online Education Group, Jingrui and Ambow Education Co Ltd.
China’s top two players in the field, namely New Oriental Education and Technology Group and TAL Education Group, went public in the United States several years ago.
Compared with these companies, Puxin seemed to have received wider market attention. Industry analysts attributed this aspect to Puxin’s business model that lays stress on mergers and acquisitions or M&As.
The majority of players in the education segment prefer to grow organically; but Puxin is a kind of aggregator or accumulator, swallowing up smaller or underperforming firms. Post-M&A, it aligns them with its own business (services related to studying abroad).
“We believe mergers and acquisitions are the key to success in China where the education market is highly decentralized,” said Wang Peng, chief financial operator of Puxin, in an exclusive interview with China Daily.
There are over 100,000 providers of after-school educational services in K12 (kindergarten through 12th grade) sector, he said.
“However, the top five only make up for around 4 percent of the total market share, which leaves a huge space for Puxin to come in.”
Wu Jincao, senior analyst at Shanghai-based Sinolink Securities, said Puxin’s M&A strategy is an “aggressive” one, and should help it to quickly expand.
“Puxin is taking a different path to square up against strong rivals in New Oriental and TAL. Middle and small educational institutions are relatively weak to run a business efficiently. Nor do they have enough financial and management strength to expand in the long term.
“By targeting such companies, Puxin is very likely to become the third-largest player in the market after New Oriental and TAL.”
As of now, the Beijingbased Puxin has acquired 48 education firms. From over 450,000 students in 2016, Puxin’s total enrollment has increased by 180 percent to 1.28 million last year.
Takeover of more than 40 troubled or underperforming companies with an intent to turn them around is a big challenge, said Wang.
“To integrate them into one, our basic principle is ‘standardization’ — Puxin Business System or PBS —
We believe acquisitions and the ability to integrate and manage the firms acquired are the key to success in China, where the education market is highly decentralized.” chief financial officer of Puxin
Wang Peng,
sales revenue of Puxin last year surge in sales revenue of Puxin in 2017 over 2016
where we have 3,000 procedures to unify various ways of operating companies.”
Wang compared the procedure to riding a horse. “The horse will get a signal and become docile once you do some standardized actions, indicating that you are a professional. Gradually, this will also turn into an upward and positive circulation.”
Puxin’s business model has generated 1.28 billion yuan ($204.5 million) in revenue last year, up 192 percent year-on-year. In doing so, Puxin stopped losses at firms it acquired. Among the first batch of schools it acquired in 2015, the operating margin rate has increased to 10.8 percent in the first quarter of this year from minus 5.5 percent in 2016.
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