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

There is a backlog of more than 50 for-profit education M&A opportunities across Europe, mid-market investment bank Baird has claimed in a new report. 
It suggests this will amount to a “new wave” of deals in the region, driven by a favourable operating climate, scarcity of assets and pressure on sponsors to deploy capital. 
The bank notes there have been more than 40 transactions in European education since the start of 2013. Last year was a “record year”, with M&A volume increasing 63% to 26 deals. 
The UK accounted for most of the activity, though M&A in continental Europe has accelerated, says Baird. In 2013, Apax Partners paid €200 million (£157.9 million) 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.
Valuations have been strong, claims Baird, adding that investors who “understand the sector and the business models are well-positioned to generate attractive returns”. It cites Graphite Capital’s 5.8x return on its sale of Education Personnel this year, and Palamon Capital Partners’ 14.6x return on its sale of Cambridge Education Group last year. 
Martin Luen, a director in Baird’s technology & services investment banking team, said: “Since January 2013, we have seen ten acquisitions valued at over 10x ebitda, accounting for over $3 billion (£1.9 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 $120 billion of dry powder in buyouts. The deals we saw in this sector last year are just the tip of the iceberg.”
Education companies are also seeking investors to support global expansion, driven by rising demand in emerging markets. However, Jonathan Harrison, a managing director in Baird’s global investment banking business, added that European schools and universities had grown their international operations 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.”

Posted on: 29/10/2014

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