The investment arm of a Canadian pension fund is closing in on a deal to acquire a minority stake in one of the world’s largest international school operators, which could value the company at €2 billion, EducationInvestor Global can reveal.

This publication has learnt that OMERS Private Equity – a division of the Ontario Municipal Employees Retirement System – is in advanced discussions with Swiss private equity firm Partners Group about purchasing a 25% stake in ISP. EducationInvestor Global exclusively revealed in February that Partners Group was seeking a minority sponsor for ISP.

With around 50 institutions worldwide that cater to more than 45,000 students, ISP is the world’s fifth-largest international school operator by measure of revenue. Partners Group has owned a controlling stake in the business through its London-listed investment vehicle Princess Private Equity Holding since ISP’s inception in 2013.

A deal with OMERS – which is “likely” but not guaranteed, according to a well-placed source – could value ISP at up to €2 billion, equal to 20-times the firm’s annual earnings before interest, tax, depreciation and amortisation (EBITDA) of around €100 million.

A spokesperson for Partners Group declined to comment. OMERS did not respond to a request for comment.

By selling a minority stake in ISP to OMERS, Partners Group could orchestrate what is known as a fund-to-fund transfer, which would see the buyout group sell its controlling stake to another fund that it controls.

Fund-to-fund transfers facilitate the extension of holding periods. However, to obtain investment committee sign-off, a certain enterprise value must be achieved to justify the continuation of an investment, rather than a full exit.

A deal with OMERS, which manages C$105 billion (£61 billion) of assets, would mark a partial exit for Partners Group, allowing the latter to realise some value eight years after its initial investment while retaining a controlling stake in the company as it continues to expand via M&A.

In the past six months, ISP has entered Italy and Canada via acquisitions of schools and nurseries. The organisation also operates schools in Spain, Malaysia, Mexico, Costa Rica, the UK, Chile, the United Arab Emirates, Qatar and the US.

OMERS’ pursuit of a stake in ISP underscores the deepening influence of Canadian pension funds in the education sector. Nord Anglia, a competitor to ISP, is backed by Canada Pension Plan Investment Board (CPPIB), which also owns a 40% stake in for-profit university operator Galileo Global Education. Busy Bees, one of the world’s largest nursery operators, is owned by The Ontario Teachers’ Pension Plan.

Last March, EducationInvestor Global revealed that OMERS was in the running to acquire France-based childcare giant Babilou, which was ultimately bought by Antin Infrastructure Partners, a French private equity fund.

Pension funds often pursue minority stakes in companies alongside private equity groups to hedge investment risk. Moreover, many pension funds have neither the sector expertise nor professional capacity to dictate strategy, whereas private equity firms specialise in certain industries and typically seek majority stakes that afford control over strategic decision-making.

News of a potential deal with OMERS comes just a week after EducationInvestor Global exclusively revealed ISP rival Inspired Education’s plans to IPO next year.

Date published: 18 May 2021

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