The First Benefit Corporation IPO Is Coming, And That's A Big Deal

Last year, we saw Etsy become the largest certified B Corp to go public. Now, get ready for the first public stock offering by a chartered Benefit Corporation. This ain't no friendly neighborhood organic coffee roaster, either. Laureate Education promises to operate as a triple-bottom-line business, but this is a much bigger, more complicated deal.

Laureate is the world's largest for-profit operator of online and campus-based higher education. It owns, controls or manages 88 institutions that enroll more than 1 million students, 90 percent of whom live outside the United States. It has been growing rapidly, and in 2014 its revenues exceeded $4.4 billion. It's a 16-year-old company, but it announced its new charter as a Delaware Benefit Corporation just four months ago, on the same day it registered for its IPO.

Laureate's current owners aren't the kind of folks you'll find at a typical Benefit Corp meet-up. Kohlberg Kravis Roberts (KKR), one of the world’s largest private equity firms, leads a group of investors who control Laureate’s shares through a holding company. Point72, another venture capital behemoth, owns a big chunk. So does the International Finance Corp., which is the private-sector arm of the World Bank.

KKR's leaders are Henry Kravis and his cousin, George R. Roberts, who gained fame for their scorched-earth takeover of Nabisco in the late 1980s. They're old-school corporate raiders. Now, they own a Benefit Corporation, and that could be a big deal.

Laureate registered as a Benefit Corporation so IPO investors will know that it takes its social mission seriously, according to its founder and CEO, Doug Becker.

"We recognize that some investors in public companies are highly focused on short-term results," Becker wrote in the company's prospectus, "and we hope that it is very clear to them that this is not our approach. With the benefit of a long-term view, we will balance the needs of stockholders with the needs of students, employees and communities in which we operate, and we believe that this approach will deliver the best results for our investors."

SEC laws prohibit Becker and KKR from talking about the IPO. But others are taking notice. "KKR could be just the tip of the iceberg," says Luke Stephan, a partner at Keene Advisors in Newton, Massachusetts, a small firm that specializes in advising business owners who are selling their companies. Many Keene clients bring their social consciences to their businesses, and Keene itself is pursuing Benefit Corp certification.

"If the Laureate IPO is successful, it will provide a roadmap for institutional investors, family offices and individual investors who want to invest capital in businesses that generate a good return and make valuable contributions to society at large," Stephan wrote. "And it will provide a strong counterpoint to skeptics that believe that businesses cannot access institutional capital unless they focus exclusively on maximizing value for shareholders."

"Laureate is a real validation of the value side of the equation," says Rick Alexander, legal advisor to B Lab, the nonprofit behind B Corp certification -- not to be confused with Benefit Corps. "About $6 trillion in investment funds are earmarked for social impact in some way. That's a huge target. But benefit corporations are a new idea, and a lot of investment professionals are not convinced that they will give a good return. Many of them just don't know about us.

"KKR is a high-profile company, so the Laureate IPO could convince a lot of people that they're safe to invest in. The essence of the idea is that by serving the interests of stakeholders as well as shareholders, you create value that companies focused only on their shareholders do not create."

Switching its status might also help Laureate answer the many critics of for-profit higher education. According to a 2012 US Senate committee report that examined 30 companies, including Laureate, the sector spent an average of 41 percent of its revenue on marketing, advertising, recruiting and admissions, and profit distribution. They spent just 18 percent on instruction. The report argues that making federal grants and loans to students at for-profit colleges is a bad deal, both for the students and the government.

Alumni of Walden University, an online degree program owned by Laureate serving mostly graduate students in the United States, have accumulated the second-highest amount of federal loans of any school in the country, according to a 2014 study by the Brookings Institution. And only 44 percent of its undergraduates had started to repay their loans three years after leaving the school, a level far below the national average.

Laureate is not the first for-profit school to become a benefit corporation. But it is the first to sign up for B Lab's rigorous social audit program, which it passed in 2015. It also participates in B Lab's Higher Education Standards Working Group. So, is Laureate using B Lab to clean up its image while it prepares to go public? Sure. And is that a bad thing? Only if it doesn't walk the talk.

Image credit: Flickr/herval

Note: This post was updated on Feb. 8 to clarify reader questions about Etsy's IPO. While Etsy was a certified B Corporation at the time of its IPO, it is not a chartered Benefit Corporation -- at least not yet.