An auction of a minority stake in one of the world’s largest international school operators has been launched, EducationInvestor Global can reveal.

This publication has learnt that private equity house Partners Group is on the hunt for a minority investor in ISP.

Partners Group, which controls ISP through its London-listed investment vehicle Princess Private Equity Holding, is seeking to offload up to 25% of the company.

Partners Group – which is not being advised by an investment bank – has circulated a prospectus for ISP to a number of prospective private equity investors, it is understood.

Switzerland-headquartered Partners Group aims to sell a slice of ISP with the intention of transferring its controlling stake in the company to another fund that it operates.

This move – known as a ‘fund-to-fund transfer’ in banking parlance – would enable Partners Group to extend its investment horizon while realising some value around eight years after its initial investment in ISP in 2013, when it launched.

“It’s a big theme right now because high-quality assets are scarce and usually in highly competitive processes,” said one investment banker. “So private equity funds want to hang onto the best assets.”

ISP operates 48 schools in over a dozen countries that collectively cater to more than 45,000 students. It is the largest company in Princess Private Equity Holding’s portfolio by net asset value.

According to financial reports published by Princess Private Equity Holding, Permotio International Learning (ISP’s holding company) is one of the best-performing assets in its portfolio. As of 31 December 2019, Permotio International Learning had created £42.3 million of value for Princess Private Equity Holding, it stated.

One source said that strategic consultancy L.E.K. Consulting had been awarded by Partners Group a contract to produce a vendor due diligence report on ISP. A partner at L.E.K. Consulting’s global education practice declined to comment when contacted by this publication.

Partners Group’s exploration of a minority stake sale will draw a line – for now – under speculation that ISP could merge with rival international school operator Cognita, as reported exclusively by this publication in December.

However, Partners Group’s plan to sell a minority stake and execute a fund-to-fund transfer of its majority position in ISP is contingent on the achievement of a certain valuation, sources said.

EducationInvestor Global reported last September that Partners Group had sought to value ISP at €2 billion – equal to 20-times the group’s forecasted earnings before interest, tax, depreciation and amortisation (EBITDA) – amid earlier discussions with investment banks and investment houses.

Partners Group “will need to bring on a minority investor to validate to the old fund investors that they are not doing a sweetheart deal with the ‘new’ fund investors – i.e., that this is a fair market value transaction”, an investment banker explained.

Another source, a former private equity investor, echoed the banker’s comments, saying: “They [Partners Group] can only sell to another fund if they get an external investor to buy a stake and justify the valuation – otherwise they won’t be able to.”

Market insiders told this publication that Partners Group had previously attempted to auction off a stake in ISP – but discussions reportedly stalled due to concerns over “some low-quality assets”, limited organic growth and “expensive” M&A deals.

In December, ISP acquired two schools in Canada, adding around 800 students to its network.

ISP also operates schools in Spain, Malaysia, Mexico, Costa Rica, the UK, Chile, the United Arab Emirates, Qatar and the US.

ISP’s parent company has said that the impact of Covid-19 on the business has been “relatively limited”.

According to a report published by Princess Private Equity Holding in December, Permotio International Learning “responded well to Covid-19 disruptions, continuing to deliver lessons via virtual learning where necessary and implementing strict controls on expenditure”.

This meant that “overall, Permotio increased earnings, with pro forma LTM [last twelve months] EBITDA growing by ~10% in the period to December 2020”. ‘Pro forma’ is a method by which financial performance is calculated using certain projections or presumptions.

According to Princess Private Equity Holding, ISP, which is led by group chief executive Steve Brown, is the world’s fifth-largest private school operator by revenue.

A spokesperson for Partners Group offered “no comment” when contacted by EducationInvestor Global.  

Date published: 23 February 2021

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