Bloomberg News

Abril Eyes Schools as Demand for English Grows: Corporate Brazil

September 05, 2012

Abril Educacao SA (ABRE11), the education arm of Brazil’s Grupo Abril, plans to step up acquisitions amid rising demand for students looking to learn English.

Chief Executive Officer Manoel Amorim said Abril Educacao’s appetite to buy companies is increasing after businesses bought over the past year grew at least 10 percent. Abril Educacao, based in Sao Paulo, could have as much as 1 billion reais ($490 million) to spend by increasing debt to 3.5 times earnings and selling about 100 million reais of new stock, he said.

Abril Educacao, which started as a textbook publisher, is targeting schools that teach English as a second language as only about 3 percent of Brazilians can speak English, compared with at least 10 percent in Mexico or Asian developing economies, Amorim said. The acquisitions will help the company boost revenue from language schools and education services, the most profitable divisions, to 50 percent of sales from 20 percent.

“We’re looking at all acquisition opportunities there are in Brazil,” Amorim said in an interview at the Bloomberg office in Sao Paulo yesterday. The language school industry “will consolidate as most companies are family businesses, and many want to associate with stronger players or sell.”

In its latest acquisition, Abril Educacao paid 29.9 million reais in July for a 51 percent stake in Red Balloon, a franchise network of 34 schools that teach English as a second language. Amorim declined to comment on an O Estado de S.Paulo newspaper report last week that Abril Educacao was in talks to buy Wise Up, an English-language school.

Stock Performance

Abril Educacao, which also runs elementary and high schools, spent about 120 million reais buying companies since raising 371.1 million reais in an initial public offering in July 2011. Then the company said it would spend 67 percent of net IPO proceeds, or about 246 million reais, on acquisitions. So far Abril Educacao has spent half of that amount, he said.

“They realized the education services industry was growing, and that it would cannibalize their initial product, which is textbooks, so they went for acquisitions that made sense,” said Erico Argolo, a partner in Bogari Capital, which manages 300 million reais, including Abril shares, in Rio de Janeiro.

Since the IPO, Abril Educacao has gained 60 percent in Sao Paulo as the benchmark Bovespa index of most traded stocks fell 5.2 percent. Abril Educacao is up 56 percent this year through yesterday, compared with a 0.9 percent loss in the Bovespa index. Abril fell 0.3 percent to 31.90 reais at 2:20 p.m. as the benchmark index gained 0.8 percent.

U.S. Losses

Brazilian for-profit college education companies also outperformed the broader market. Kroton Educacional SA (KROT3) surged 79 percent, Estacio Participacoes SA (ESTC3) gained 77 percent and Anhanguera Educacional Participacoes SA (AEDU3) rose 49 percent.

Amorim said a possible sale of new stock would also help to increase the number of Abril Educacao shares available for trading.

U.S. for-profit colleges have suffered declining enrollment as Congress and state attorneys general investigate their marketing and job-placement claims. The schools can receive as much as 90 percent of their revenue from federal loans and grants that students use to pay tuition. In the 2009-2010 academic year, they got almost $32 billion in U.S. student aid.

A Bloomberg index of 13 for-profit college companies has tumbled 45 percent this year. Apollo Group Inc., owner of the University of Phoenix -- the largest U.S. for-profit college -- has lost almost half its value this year.

Buy Recommendations

Abril Educacao trades at 38 times its 12-month trailing earnings, compared with 58 for Anhanguera, 29 for Estacio and 24 for Kroton, according to data compiled by Bloomberg. Seven of eight analysts that cover Abril Educacao have a buy recommendation, while one says hold, Bloomberg data show.

Amorim, a former Procter & Gamble Co. executive, said Abril Educacao serves 17,000 students directly and 30 million students indirectly through learning systems, including books and teaching materials, sold to 130,000 schools. The textbook division accounted for 43 percent of revenue as of June 30.

“Any learning systems that may complement our business geographically or pedagogically, if they’re up for sale, we will look at them,” said Amorim.

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

To contact the editors responsible for this story: Adriana Arai at aarai1@bloomberg.net; Helder Marinho at hmarinho@bloomberg.net


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