Kroton Educacional acquires rival in $2.49bn deal


Financier Worldwide Magazine

June 2013 Issue

June 2013 Issue

The consolidation of Brazil’s education sector continued in April when Kroton Educacional SA announced it had agreed to acquire rival firm Anhanguera Educacional Participacoes SA in a deal worth approximately $2.48bn. The transaction will be completed as an all-stock deal. 

The agreed terms will see Kroton offer 1.364 common shares for each share of Anhanguera it acquires. In order to finance the deal Kroton will be required to issue 198,763,627 new shares. 

Although the transaction is still subject to antitrust approval from Brazilian regulator CADE, the firms remain confident that the deal will be endorsed. Anhanguera and Kroton operate in around 80 cities, yet they only overlap in four. Rodrigo Calvo Galindo, Kroton’s chief executive officer, said that the firms have “complete confidence that this will be approved”. 

The transaction, which has already been approved by the respective boards of both companies, will see Gabriel Mário Rodrigues assume the position of chairman of the board of the new joint company. Mr Galindo will continue to serve as CEO. 

Jointly, Kroton and Anhanguera have a combined network of more than 800 post-secondary school locations and 810 associated schools across all Brazilian states. “Both companies have a lot of upside in margins operating alone,” said Anhanguera CEO Ricardo Scavazza, “and [in terms of] both companies operating together, the upside is even greater.”

The two firms also have approximately one million students in post-secondary education, professional education and other education related activities. According to representatives from both companies, once merged, the new firm will be Brazil’s largest private education company with a domestic market share of 20 percent and potentially the largest for-profit education company in the world. Kroton is already Brazil’s largest provider of undergraduate distance learning. Mr Galindo said on a conference call that the purchase of Anhanguera “represents the creation of a unique company with a strong presence in higher learning – long distance and on campus”

Recently a wave of consolidation has swept across the Brazilian private education sector. In February, Abril Educação SA agreed its third language related deal since September 2011 when it agreed to acquire English school network Wise Up for $435.7m. In 2012, private equity funds Actis LLP and H.I.G. Capital LLC also purchased language schools in Brazil. Furthermore, the Anhanguera deal represents the fourth education acquisition completed by Kroton since it announced the R$1.3bn purchase of Brazil’s largest distance learning institution, Uniao Norte do Parana de Ensino Ltd, in December 2011. 

Mr Galindo told analysts that the new company, which has little interest in international acquisitions in the short term, is still in the market for additional domestic mergers and acquisitions. He remarked that “both our companies are the result of previous mergers and acquisitions.

Once the transaction has been completed, Anhanguera shareholders will hold a 42.5 percent stake in the new company, with Kroton shareholders controlling the remaining 57.5 percent. For the newly combined company, analysts believe that EBITDA will reach nearly R$1bn in 2013, up from R$700m in 2012. In the 12 months ended 31 December 2012 the two companies recorded gross revenue of R$4.3bn, while the aggregate market capitalisation of the two is approximately R$12bn. Seventy-three percent of the companies’ combined revenue in 2012 came from on campus university educational services, 23 percent from online university services and 4 percent from primary and secondary education.

With the ongoing economic expansion of Brazil, according to data from the government’s IBGE statistical agency, over 30 million Brazilians have risen at least one social class over the last decade, yet only approximately 14 percent of Brazilians aged 18 to 24 are studying at university. The government hopes to increase this figure to 33 percent by 2020.

On 30 April, Anhanguera announced that, effective immediately, Mr Scavazza was leaving the company. He has been replaced by chief operating officer Roberto Valério. 

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Richard Summerfield

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