Kroton in Talks for Brazil Education Acquisitions

Kroton Educacional SA (KROT3), Brazil’s best-performing education stock this year, is in talks to buy three companies and will probably exceed its own earnings forecasts this year, Chief Executive Officer Rodrigo Galindo said.

Galindo said the company, which has Advent International Corp. among its controlling shareholders, plans to expand in the northern half of Brazil after agreeing to buy the nation’s biggest distance-learning institution, Unopar, for 1.3 billion reais ($690 million) in December. The potential acquisition targets may add about 15,000 students to Belo Horizonte-based Kroton, he said.

“There are a lot of opportunities for consolidation in the in-class business, and we want to take advantage of that,” Galindo said in an April 17 interview at Bloomberg’s office in Sao Paulo.

The company’s shares rose 0.5 percent to 25.92 reais in Sao Paulo, while rivals Anhanguera Educacional Participacoes SA (AEDU3) gained 2 percent and Estacio Participacoes SA (ESTC3) went up 0.9 percent. Kroton has advanced 41 percent this year, compared with a gain of 29 percent for both Anhanguera and Estacio. The Bovespa Small Cap index, which includes the three companies, has risen 20 percent.

Kroton is adding students faster than it anticipated as the government steps up subsidized lending to improve education in the world’s second-largest developing market. The admissions will help boost operating earnings at Kroton’s in-class business, whose profit as a share of revenue will top a company estimate of 17 percent this year, Galindo said.

Earnings before interest, taxes, depreciation and amortization may rise to about 300 million reais ($160 million) this year, more than the 285 million reais initially expected, he said.

Kroton has more than 600,000 students, according to its website.

Ten of the 12 analysts covering Kroton have a buy recommendation on the shares, while one recommends holding the securities and another has a sell rating.

To contact the reporters on this story: Felipe Frisch in Sao Paulo at ffrisch1@bloomberg.net

To contact the editor responsible for this story: Helder Marinho at hmarinho@bloomberg.net

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