April 22, 2013 11:44 pm

Brazil education groups in $2.5bn tie-up

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Brazil’s two largest private tertiary education companies have agreed to combine in a private equity-backed deal that will create the world’s biggest for-profit operator by market capitalisation.

Kroton Educacional, part-owned by US-based private equity firm Advent International, will pay $2.48bn for rival Anhanguera Educacional Participações, part-controlled by BlackRock of the US, to create a company with 1m students and a pro forma market value of R$12bn (US$5.9bn).

Kroton said that together the companies would have “a universe of about 1m students in higher and professional education and other activities associated with education in Brazil”.

The deal comes amid increasing consolidation in one of Brazil’s most profitable sectors as more of the country’s lower middle classes enrol in private universities to qualify them for better jobs.

The deal would create the largest private for-profit education company in the world by market capitalisation, overtaking Japan’s Benesse Holdings, according to data compiled by Bloomberg.

Kroton said the combined enterprise would have 800 of its own higher education campuses and 810 associated schools throughout Brazil.

Kroton, which is based in Belo Horizonte in Minas Gerais state, will have 57.48 per cent of the new company, while Anhanguera will control 42.52 per cent. Kroton will issue 198.8m new shares to fund the acquisition.

The growing interest in education of Brazil’s new middle class has attracted interest from international investors, with Pearson, owner of the Financial Times, paying $500m for the learning systems division of Brazilian company Sistema Educacional Brasileiro in 2010.

This year, another Brazilian education group, Abril Educação, agreed to pay R$877m for English language school group Wise Up, and last year private-equity funds Actis and HIG Capital invested in other language schools in the country.

Kroton is 10.2 per cent owned by Advent while Anhanguera is 5.48 per cent owned by BlackRock.

The new company would have pro forma sales of R$4.3bn based on 2012 financials and net profit of R$420m with a combined margin of 13.9 per cent.

Advent would be one of its largest shareholders with 5.8 per cent, but it was unclear what shareholding if any BlackRock would continue to hold.

Kroton shares gained 7.7 per cent to R$27.09 in São Paulo trading and Anhanguera rose 6.5 per cent to R$36.38.

Analysts viewed the deal as positive in a market in which consolidation has increasingly become a growth driver as the rate of new student enrolment has slowed down.

The transaction will be subject to approval by Cade, Brazil’s antitrust regulator.

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