Pearson Skips University to Hunt for Deals in Africa

Pearson Plc Chief Financial Officer Robin Freestone, with 1 billion pounds ($1.6 billion) to spend on deals this year, is studying new takeover targets amid sluggish funding for publicly funded schools and universities.

The company is seeking to buy for-profit education companies in markets such as India, Brazil and China as well as websites and software that help people acquire new skills, Freestone said in an interview in Bloomberg’s London office.

“The fast growing part of the education market globally at the moment is people training to do a specific job and that can be a construction worker, an accountant, a lawyer, a financier, someone who wants to work in the hotel industry,” Freestone said yesterday. “The growth in that part of the market is running at about twice the level of students going into university currently.”

Pearson, which makes most of its revenue from education offerings in the U.S., needs to make up for a slowdown in its traditional markets as North American education sales shrank by 2 percent last year. Freestone, 53, says he wants to make London-based Pearson the “biggest and the best education company in the world and that can’t just involve being big in America.”

Pearson’s international education business, which grew 15 percent by sales and adjusted operating profit last year, accounted for almost a quarter of the 5.9 billion pounds in annual revenue.

Low-Cost Schools

One of Pearson’s target markets are low-cost, for-profit schools in places such as India and Africa where local schools might be of lower quality. In Kenya, where a laborer makes about $2 a day, children can be sent to a school, where Pearson is a co-investor, for $4 a week, Freestone said.

“There are similar models like that in India, but to make any money at that, you have to have volume,” he said. One of the ways the company plans to expand in these areas is through acquisitions, he said.

Pearson’s education and professional sales grew 4.3 percent to 4.4 billion pounds in 2011. The FT Group, which includes the Financial Times, a stake in the Economist, investor-focused trade magazines and related businesses, grew 6 percent to 427 million pounds.

The stock dropped 0.3 percent to 1,196 pence in London as of 8:40 a.m. The shares have gained 9.7 percent in the last 12 months while the U.K. FTSE benchmark dropped 2.2 percent.

Pearson, which also owns the Penguin book publisher, has sold some of its non-education businesses in the past two years, including researcher IDC and a 50 percent stake in FTSE International Ltd., which publishes the FTSE 100 Index.

Not For Sale

Still, the FT, the pink-paged financial newspaper that traces its origins to two English papers formed in the 1880s, is not for sale and never has been, Freestone said.

The Financial Times makes Pearson more sensitive to downturns in the economy and the company should try to sell the asset within three years, Sanford C. Bernstein analyst Claudio Aspesi wrote in a note to investors in January.

The company is focusing on digital and for-profit schools as traditional education is subjected to budget cuts. Schools in North America are delaying orders of textbooks and Pearson said in its annual report that it anticipates lower college enrollments this year.

Acquisition Targets

Pearson typically considers 25 to 30 acquisition targets at any time, Freestone said. The company spent almost 900 million pounds on 10 deals last year and has the headroom to do more than that this year, he said.

Recent acquisitions include Schoolnet, which collects data on student performance, and home-schooling service Connections Education as well as Chinese test-preparation company Global Education and Technology Group.

Deals this year will probably be “small” to develop fast-growing niche markets as the market is dominated by only a few companies, he said. The top four companies in U.S. education services account for 90 percent of the market, he said.

“More of that size spreads the risk,” Freestone said. He declined to comment on specific targets and the number of deals, comparing dealmaking to waiting for buses.

“You go for six months and you can’t find anything and then three come along in the space of a week.”