The acquisition of rapidly growing Grupo Multi, which has 2,600 franchised schools, deepens Pearson’s involvement in the country at a time when many multinationals are nervous about Latin America’s biggest economy’s stalling economic growth and interventionist centre-left government.
The Brazilian currency has fallen by one-third against sterling since Pearson paid £326m for the learning systems arm of Sistema Educacional Brasileiro in June 2010, its first major deal in the country.
Grupo Multi generated operating profits of £42m (R$130m) last year, Pearson said, or £34m at current exchange rates, valuing the acquisition at 13 times earnings before interest and taxation.
“It’s not particularly cheap, but that’s the nature of the beast when you’re dealing with educational M&A,” said David Reynolds, an analyst at Jefferies.
“English language training is a good way to access the emerging market opportunity, [although] it’s probably not going to demonstrate explosive digital growth,” he said.
The English-speaking education sector has also attracted private equity investors. London-based Bridgepoint is nearing an agreement to buy Cambridge Education, a provider of pre-university courses, for £185m from Palamon Capital, a person with knowledge of the deal said on Tuesday.
Pearson, which has been seeking to move away from its traditional focus on textbooks, will pay £440m in cash and assume £65m in debt.
The deal represents a successful exit for the Martins family, which stands to receive £340m for its 78 per cent stake in Grupo Multi.
Carlos Wizard Martins set up his first language school in 1987, before acquiring rival networks.
In 2010 Grupo Multi sold a 20 per cent to Kinea, a private equity arm of Itaú bank, in a deal that valued its equity at R$1bn (£260m).
Its sales were R$337m in 2012, up nearly 90 per cent from the previous year following several acquisitions.
Education is seen as one of Brazil’s most profitable sectors, leading to several deals in recent months.
Abril Educação, a publishing group, this year agreed to pay R$877m for English language school group Wise Up.
Interest in English courses is expected to rise in the run-up to next year’s World Cup and the Olympic Games in Rio de Janeiro in 2016.
“Brazilians’ appetite for learning English as a global language of business and trade shows every sign of continuing to grow rapidly as Brazil becomes a global player in commerce, travel and a host of other industries,” said John Fallon, chief executive of Pearson, in a statement.
Grupo Multi’s schools teach 800,000 adults, while the Sistema’s services owned by Pearson are aimed at primary and secondary schoolchildren.
However, analysts said that there may be some synergies with Pearson’s existing operations, including the Wall Street English brand, which has four language centres in Brazil.
“Grupo Multi is a mid-market player, whereas Wall Street English is more exposed to high-end customers,” said Nick Dempsey, an analyst at Barclays, in a note to clients.
The acquisition of Multi, which is expected to close next year, will roughly replace the earnings removed from Pearson by the £382m sale of Mergermaket to BC Partners.
However, it will not be accretive to Pearson’s earnings until 2015, a dynamic that analysts at Citi attributed to integration costs and additional investment.
Pearson, which owns the Financial Times, currently receives more than four-fifths of its sales and operating profits from Europe and North America, and is aiming to increase its presence in emerging markets.
In 2011 it agreed to buy a 45 per cent share in Brazilian consumer publisher, Companhia das Letras, for an undisclosed price.
Shares in Pearson, which have risen 12 per cent in the past year in line with the FTSE 100, fell 11p, or 0.8 per cent, on Tuesday to £13.32.
Additional reporting by Anne-Sylvaine Chassany
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