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Baird predicts new wave of M&A activity in European for-profit education

Middle-market investment bank Baird has released a report anticipating a new wave of M&A within the European for-profit education sector.

The report identifies a backlog of more than 50 for-profit education M&A opportunities across Europe and details how the sector is transforming, presenting opportunities for businesses to grow rapidly.
 
Noting Graphite Capital’s 5.8x return on its sale of Education Personnel and Palamon Capital Partners’ 14.6x return on its sale of Cambridge Education Group, Baird concludes that investors who understand the sector and the business models are well-positioned to generate attractive returns.
 
Since the start of 2013, there have been more than 40 transactions in the European education sector.  Last year was a record year with M&A volume increasing 63 per cent to 26 deals. The UK accounted for most of this activity, though M&A in continental Europe has accelerated.  In 2013, Apax Partners paid EUR200m for higher education provider INSEEC, the fourth private equity deal in the French higher education sector. In Germany, the private higher education sector has grown six-fold in the last 12 years.
 
Martin Luen, a director in Baird’s technology and services investment banking team, says: “Since January 2013, we have seen ten acquisitions valued at over 10x EBITDA, accounting for over USD3 billion in aggregate deal value. These are high quality assets which justified their valuations. Another important factor though, is the scarcity of high quality education assets of scale.  European financial sponsors are under increasing pressure to deploy over USD120 billion of dry powder in buyouts. The deals we saw in this sector last year are just the tip of the iceberg.”
 
European education companies are increasingly seeking new investors to support the next stage of their development in emerging markets. Companies like Nord Anglia and Cognita have established networks of schools in emerging markets to capitalise on the expanding middle class. Additionally, more overseas students are looking to study in Europe. This has attracted private equity firms to invest in companies like Study Group, Cambridge Education Group and INTO University Partnerships, which specialise in attracting foreign students to western universities.
 
Jonathan Harrison, a managing director in Baird’s global investment banking business, says: “European schools and universities have grown their international operations with great success in the face of limited opportunity to expand domestically.  Europe has an enviable academic reputation overseas.  We expect future consolidation to take place as investors seek to build larger platforms, achieve cost savings in recruiting students and attract premium valuations.”
 
The deal catalysts also extend to the European corporate training sector, which is growing in sophistication but remains fragmented. This year Skillsoft, the USD2.4 billion Irish-based corporate e-learning company, announced the acquisition of HR software provider SumTotal Systems, and John Wiley & Sons acquired the French digital learning company CrossKnowledge for USD175 million. European businesses need the scale and resources of global operators to serve their multi-national clients and accelerate their growth. Large scale operators can share their existing content authoring, technology and distribution infrastructure.

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