Grand Canyon Education is apparently still coming public.  But what is interesting is that the company has had to lower its price twice to get the deal done.  The company has cut its initial public offering price for a second time and the company plans to sell 10.5 million shares of common stock in a price range of $12.00 to $14.00.

Earlier this month, Grand Canyon gave an initial price range of $16.00to $18.00 per share.  The initial price range was $18.00 to $20.00 per share.  We gave an update on this IPO just a few weeks ago. 

There is a reason that this IPO is being priced so low, and it is beyond just a weak stock market.  This also happens over and over when companies come public under this manner.  Herewas our synopsis on September 29, 2008:

• It looks like 75% of the net proceeds will be used to pay existingshareholders in a special distribution.  Grand Canyon will spend up to$16 million to repurchase an outstanding warrant and the remainder willpay for filing and offering fees and general corporate purposes.  Intoday’s volatile and weak stock market, that 75% of proceedsimmediately going out the door may get a little push-back frompotential IPO subscribers.

Today’s filing still shows that 75% of the gross proceeds from this IPOwill be paid out to existing stockholders as a special distribution. 

Companies with VC or private equity backing need to take heed andcaution when they bring a company public.  Investors want IPO proceedsto go to the company they are buying into rather than to buy outbacker-shares so the original investors realize a huge pay day.  Ifthey pay half, that is one thing.  But they’d rather that a substantialportion go into the company coffers from the start.

Backers can state in a prospectus that they will be selling shares fromtime to time or in blocks for quite some time.  But taking this much ofthe company proceeds from the start just sets an IPO up for failure.In today’s markets, these backers and insiders should know better.

Due to the poor reception this has been given and due to such a largeportion of the proceeds going right out the back door, it is not toohard to give this one a thumbs down from the start.  If these guys really want a decent IPO they need to consider dropping down the proceeds which will be paid out from the start.

You can join our open email distribution list to hear about otherIPO’s, secondary offerings, special financing packages, private equity,Warren Buffet activities, and other special situations.

Credit Suisse and Merrill Lynch & Co. (MER), and co-managers werelisted as BMO Capital Markets, William Blair, and Piper Jaffray. Grand Canyon Education will trade under the ticker "LOPE" on NASDAQ.

Jon C. Ogg
November 19, 2008

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