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McGraw Hill valued at $3.25 billion as shares open flat in underwhelming debut

McGraw Hill Valued at $3.25 Billion as Shares Open Flat in Underwhelming Debut

NEW YORK, July 24, 2025 (Reuters) - Educational publishing giant McGraw Hill made its much-anticipated return to the public markets on Thursday, but the debut was anything but triumphant. The company, known for its textbooks, digital learning platforms, and assessment tools, was valued at $3.25 billion in its initial public offering (IPO). However, shares opened flat, failing to generate the excitement that investors and analysts had hoped for in what has been a volatile year for tech-enabled education stocks.

The IPO priced shares at $18 each late Wednesday, raising approximately $460 million for the company after underwriters exercised their option to purchase additional shares. This pricing came in at the lower end of the expected range of $18 to $21 per share, signaling early caution from institutional investors amid broader market uncertainties. By the opening bell on the New York Stock Exchange, where McGraw Hill trades under the ticker symbol "MHE," shares hovered around the IPO price, closing the morning session with a negligible 0.2% gain at $18.04. Trading volume was moderate, with about 5 million shares changing hands in the first hour, far below the frenzy seen in recent high-profile listings like those in the AI and fintech sectors.

This lackluster performance stands in stark contrast to the hype surrounding McGraw Hill's pivot toward digital transformation. Once a staple of traditional publishing, the company has aggressively invested in edtech solutions, including adaptive learning software and AI-driven analytics for K-12 and higher education. CEO Simon Allen, who took the helm in 2022, has championed this shift, emphasizing in pre-IPO roadshows how McGraw Hill's platforms could capitalize on the post-pandemic surge in online learning. "We're not just selling books anymore; we're building the future of education," Allen said in a statement released ahead of the listing. Yet, the market's tepid response suggests investors are skeptical about the company's ability to navigate headwinds like budget cuts in public education, competition from free online resources, and regulatory scrutiny over data privacy in edtech.

Analysts point to several factors contributing to the underwhelming debut. For one, the broader IPO market in 2025 has been uneven, with global economic pressures—including persistent inflation, geopolitical tensions, and a slowdown in consumer spending—dampening enthusiasm for new listings. According to data from Dealogic, U.S. IPO proceeds are down 15% year-over-year through the first half of 2025, as companies grapple with higher interest rates and a flight to safer assets like bonds. McGraw Hill's offering comes on the heels of several edtech flops, such as the 2024 debut of rival Pearson Digital, which saw its shares plummet 25% in the first week amid concerns over slowing enrollment in online courses.

Moreover, McGraw Hill's financials, while solid, reveal vulnerabilities. In its S-1 filing with the Securities and Exchange Commission, the company reported revenue of $1.8 billion for fiscal 2024, up 8% from the previous year, driven largely by subscriptions to its McGraw Hill Connect platform, which serves over 10 million students annually. Net income stood at $220 million, reflecting improved margins from cost-cutting measures and a reduction in print production. However, the filing also highlighted a heavy debt load of $1.2 billion, accumulated during its private equity-backed years under Apollo Global Management, which acquired the company in 2013 for $2.4 billion and orchestrated this IPO as an exit strategy.

Investors appear wary of the education sector's cyclical nature. With U.S. schools facing funding shortages due to state budget deficits, demand for premium edtech products could wane. "McGraw Hill is betting big on digital, but the reality is that many districts are still recovering from COVID-era disruptions and prioritizing basics over bells and whistles," said Sarah Jennings, an equity analyst at Morningstar. She noted that while the company's international expansion—particularly in emerging markets like India and Brazil—offers growth potential, currency fluctuations and local regulations pose risks. Jennings rates the stock as "hold," with a target price of $20, citing a price-to-earnings ratio of 15x, which is in line with peers but not compelling enough for aggressive buying.

The flat opening also reflects broader investor sentiment toward legacy publishers transitioning to tech. Competitors like Houghton Mifflin Harcourt and Cengage have faced similar challenges, with their stocks underperforming the S&P 500 over the past two years. McGraw Hill's strategy includes partnerships with tech giants such as Google and Microsoft to integrate AI into its offerings, like personalized tutoring algorithms that adapt to student performance in real-time. These innovations have garnered praise from educators, but monetization remains a question mark. A recent survey by the Education Technology Industry Network found that while 70% of teachers value digital tools, only 40% of schools have budgets to afford premium subscriptions, often opting for open-source alternatives.

Looking ahead, McGraw Hill's leadership remains optimistic. In a post-IPO conference call with analysts, CFO Elena Rodriguez outlined plans to use IPO proceeds to pay down debt, invest in R&D, and pursue acquisitions in the burgeoning online certification space. "This listing marks the beginning of a new chapter," Rodriguez said. "We're positioned to lead in an industry that's evolving rapidly, with global education spending projected to reach $10 trillion by 2030." The company forecasts 10-12% revenue growth for 2025, buoyed by new product launches like an AI-powered assessment tool for standardized testing.

Despite the optimism, the debut has drawn comparisons to other underwhelming IPOs in recent memory. For instance, the 2023 listing of edtech firm Duolingo saw initial pops followed by sharp corrections, as hype gave way to fundamentals. Market watchers are now monitoring whether McGraw Hill can avoid a similar fate. "The flat open isn't a death knell, but it does put pressure on the company to deliver strong quarterly results right out of the gate," said Tom Hargrove, a portfolio manager at Vanguard. He added that retail investors, who make up about 20% of the float, might provide some uplift if sentiment shifts, but institutional holders like BlackRock and Fidelity, which anchored the IPO, will be key to long-term stability.

The education sector's broader context adds layers to this story. With remote and hybrid learning becoming normalized, companies like McGraw Hill are at the forefront of a digital revolution. Yet, challenges abound: equity issues in access to technology, debates over screen time for young learners, and the rise of generative AI tools that could disrupt traditional content creation. McGraw Hill has addressed some of these by committing to ethical AI practices and partnering with nonprofits to bridge the digital divide. For example, its "Access for All" initiative provides discounted platforms to underserved schools, which has helped burnish its reputation but hasn't yet translated into outsized profits.

In the trading pits, the mood was subdued. One floor trader, speaking anonymously, described the session as "quiet—almost like a non-event." This contrasts sharply with the company's storied history. Founded in 1888 by James H. McGraw and John A. Hill, McGraw Hill evolved from engineering manuals to a powerhouse in business and education publishing. It merged with Standard & Poor's in the 1960s, spun off various units over the decades, and went private in 2013. This IPO represents a full-circle moment, but one tempered by market realities.

As the day progressed, shares edged up slightly to $18.15 by midday, a 0.8% gain, but still far from the double-digit surges that define successful debuts. Analysts from firms like JPMorgan and Goldman Sachs, who underwrote the deal, maintained neutral stances, with price targets ranging from $19 to $22. The lock-up period, which prevents insiders from selling for 180 days, could introduce volatility later in the year.

Ultimately, McGraw Hill's flat debut underscores the perils of timing in a fickle market. While the $3.25 billion valuation reflects confidence in its digital pivot, investors are demanding proof of sustained growth amid economic headwinds. For a company that has educated generations, the real test will be whether it can teach the market to believe in its future. As trading continues, all eyes will be on whether this underwhelming start is merely a hiccup or a sign of deeper challenges ahead.

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Read the Full reuters.com Article at:
[ https://www.reuters.com/business/mcgraw-hill-valued-325-billion-shares-open-flat-underwhelming-debut-2025-07-24/ ]