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Abril Pursues Record English-School Purchases: Corporate Brazil

Abril Educacao SA, a unit of publisher Grupo Abril, is carrying out its biggest acquisition spree as it vies with private-equity firm Actis LLP for stakes in English language schools.

Abril agreed to pay 877 million reais ($448 million), or about 10 times earnings before interest, taxes, depreciation and amortization, for English school Wise Up on Feb. 8. The deal came seven months after Abril spent 29.9 million reais, or 6.8 times Ebitda, for 51 percent of Grupo Red Balloon. Actis bought a 40 percent stake in CNA as part of an investment of 135 million reais announced in September and plans to double the number of campuses to 1,000 by 2018.

More Brazilians are learning English as entrants into a swelling middle class seek better jobs and spend more money to travel abroad, fueling 20 percent annual growth for CNA, said Patrick Ledoux, partner and co-head of Actis for Latin America. Only 2 percent to 4 percent of Brazilians can speak the language, compared with at least 10 percent in Mexico and developing economies in Asia, Abril said.

“English schools are in fashion now,” Ledoux said in an interview at Actis’s Sao Paulo office. “We have the fever for buying English schools, a segment that was completely unexplored two years ago, as investors realize the growth potential.”

Share Sale

Abril rose 65 percent through yesterday since July 20, when it agreed to buy Red Balloon, compared with a 5.8 percent gain for the benchmark Bovespa index. The Sao Paulo-based company has made four acquisitions in the past year, including the two English schools, data compiled by Bloomberg show.

Abril is preparing to sell as much as 600 million reais of new shares to finance the Wise Up purchase, Valor Economico reported today, without saying where it got the information.

The stock fell 0.4 percent to 49.41 reais at 4:41 p.m. in Sao Paulo trading. The company said today in a regulatory filing in response to the newspaper’s report that it is constantly looking at alternatives including share sales.

About 35 million people have joined Brazil’s middle class in the past decade, according to Data Popular, a research firm that specializes in the low-income market. The middle class benefited as Brazil, the world’s biggest emerging market after China, averaged annual growth of 3.8 percent from 2002 to 2011.

“The new middle class is realizing that a person who knows English in Brazil can earn 15 to 40 percent more,” Beatriz Amary, a director at Actis, said in an interview in Sao Paulo. “People want to learn English even to travel abroad.”

World Cup

Unemployment fell to a record low 4.6 percent in December, while Brazilians journeying internationally drove the nation’s travel account deficit to an all-time high of $15.6 billion in 2012.

Actis and Abril are also counting on demand for English classes rising ahead of the World Cup soccer games next year, followed by the Olympic Games in Rio de Janeiro in 2016. About 6 million foreign tourists a year now visit Brazil, or a 10th of the total who see the Eiffel Tower in Paris, Ledoux said.

“Abril is gaining exposure to a segment that still has remarkable potential for both expansion and consolidation,” Thiago Macruz, an analyst at brokerage Itau Corretora de Valores SA, wrote in a Feb. 13 note to clients. “This market is still remarkably fragmented, which could be a potential source of extra juice for a larger and more capitalized player.”

Abril, which started as a textbook publisher, is targeting schools that teach English as a second language. Wise Up offers classes in 89 cities in Brazil, and 21 locations in Argentina as well as the U.S., Colombia, Mexico and China, according to the company’s website. It also operates 36 classrooms on offshore oil rigs.

Market Consolidation

“Brazil is going to double the number of people who speak English in the next five years,” Abril Chief Executive Officer Manoel Amorim said in a telephone interview. “This market is undergoing consolidation. It’s positive to have fewer players.”

H.I.G. Capital LLC, a U.S. private-equity firm, bought the English school Cel Lep in Brazil in September for an undisclosed amount. Kinea, the private-equity and asset-management unit of Itau Unibanco Holding SA, also acquired an undisclosed stake in Grupo Multi, Brazil’s largest English school chain, in December 2010 for 200 million reais. A week later, Grupo Multi purchased a chain of schools under the Yazigi brand for 100 million reais.

Investor Demand

The acquisition spree may be nearing an end because of the lack of big English schools left to acquire, said Actis’s Amary.

“Some schools are growing too much and ended up buying chains that compete with each other,” she said, adding that CNA would buy only regional alternatives.

Carlyle Group LP last year gave up on efforts to buy Grupo Multi after controlling shareholders valued the company at 2 billion reais, according to a person with direct knowledge of the matter who asked not to be identified because negotiations were private.

Carlyle and Grupo Multi declined to comment on the negotiations, according to separate e-mailed statements. Grupo Multi, which controls Wizard, Yazigi and Skill brands, said it plans to hold an initial public offering, though the company didn’t set a deadline for the sale, it said in the statement.

The market for English classes has been growing at “double-digit” rates in recent years and should continue growing at that rate in coming years, Abril’s Amorim said.

“We are still receiving a lot of investor demand for English schools,” said Marco Goncalves, head of mergers and acquisitions at Grupo BTG Pactual, which advised Wise Up in the transaction with Abril Educacao. “Their revenue can grow as much as 25 percent a year. I still see a lot of room for consolidation.”

To contact the reporters on this story: Francisco Marcelino in São Paulo at mdeoliveira@bloomberg.net; Cristiane Lucchesi in Sao Paulo at clucchesi5@bloomberg.net

To contact the editor responsible for this story: Jessica Brice at jbrice1@bloomberg.net

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