American Public Education: A Rare IPO Win

By Will Ashworth | December 04, 2008 AAA

Last week I looked at the IPO from Lumber Liquidators (NYSE:LL) to assess who the winners and losers were in the deal. In my opinion, any IPO is a success if all three major stakeholders benefit from going public: the company, its existing shareholders and those purchasing shares in the IPO.

The Lumber Liquidators IPO was typically mediocre, but in this article I've decided to highlight a rare IPO that actually beat the odds and was a success for all parties involved: American Public Education (Nasdaq:APEI). (To read the Lumber Liquidators article, see Can Lumber Liquidators Pass The IPO Litmus Test? )

What it Takes to be a Winner
For the company, the IPO must bring it the funds necessary to grow. The company must receive something from the offering, tangible or otherwise, that will make it a better business. If it didn't, then there was no benefit to going public.

In the case of existing shareholders, it's simply a matter of dollars and cents. How much will they be selling and what is their return on investment?

Finally, those buying the IPO shares need only look at the stock price to determine their level of benefit. Now lets examine how the major stakeholders of the American Public Education IPO made out. (For more on this kind of stock offering, check out our IPO Tutorial.)

The Company
It began in 1991 in Virginia as the American Military University, changing names in 2002 to American Public Education, dedicating itself to providing online asynchronous (digital communication at any time of day) education to public servants including military personnel and federal/state/municipal employees. It sold 4.69 million shares at $20 on November 8, 2007, giving the net proceeds of $87.19 million to existing shareholders in the form of a special distribution so they wouldn't have to sell any shares into the offering.

Using the former controlling shareholder ABS Capital Partners as an example, its ownership went from 57.9% before the IPO to 41.7% after, while maintaining 7.11 million shares. I'm a little mystified as to why a company would do an IPO without any financial benefit to itself. The only logical reason I can come up with is that it wanted to move ABS closer to the 25% mark. Dropping below 25% would remove the controlling shareholder tag in the eyes of the Department of Education, providing it with additional financing options. In late November, competitor Grand Canyon Education (Nasdaq:LOPE) went public at $12 a share, doing the exact same thing. Education IPOs like American Public Education, Grand Canyon and K12 (NYSE:LRN) must be in demand to pull off this stunt.

The Existing Shareholders
ABS Capital Partners will have made $312.8 million or a 1,737% return in just three-and-a-half years, all of this from an $18 million investment in August 2005. The IPO and subsequent follow-on offering alone made $134.3 million. With profits banked, it can take its time unloading the remaining 4.2 million shares it still owns. The investors at ABS Capital have to be very pleased with their investment in education. It obviously pays to go to school.

IPO Investors
The performance of most IPOs in the first year is spotty at best, but that's not the case in this instance. The American Public Education IPO has been great so far. Operating for just over a year as a public company, its stock is up 106.8% from its IPO price of $20. Most of this gain came in the first day of trading, when it closed up 79.6% at $35.92. Any investors who bought stock in this IPO must be celebrating their good fortune in what has become possibly the worst year ever on the markets. Bravo.

Bottom Line
American Public Education's 2008 full-year revenue and earnings per share (EPS) guidance is excellent with revenue expected around $105 million and EPS of 81 cents. The IPO is a rare win-win-win situation.

For five tips before you take the IPO plunge, read The Murky Waters Of The IPO Market.

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