EQT defers exit brainteaser with school deal
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Karen Kwok
LONDON, Oct 22 (Reuters Breakingviews) -EQT’s EQTAB.ST $14.5 billion private schools deal deferred the true test. The Swedish investment group abandoned a sale of its Nord Anglia Education business in favour of reinvesting in the group itself. It highlights the trend of private equity firms holding on to assets for longer, and the challenges that can create.
The $14.5 billion deal, announced on Monday, values UK-based Nord Anglia at 21 times the roughly $700 million EBITDA it generated in the 12 months to August 2024, a person familiar with the matter told Breakingviews. Whereas EQT had explored a sale to other private equity funds and a listing, Nord Anglia will instead be bought by a consortium led by one of Swedish group’s new funds and the Canada Pension Plan Investment Board, alongside new investors including Neuberger Berman.
It highlights a broader theme. As IPO markets remain choppy, and high interest rates have curbed appetite for fresh deals, buyout shops are increasingly choosing to hold onto companies for longer, rather than sell a company at the wrong price. Companies like Hg Capital's Visma, which was valued at 19 billion euros last December, or 3i's Action, have thrived under many decades of private ownership.
For fast-growing companies like Nord Anglia, it’s a bet that could pay off. Rising demand for high-quality private schools has helped the group grow EBITDA at an annual rate of 15% in recent years, a person familiar with the matter told Breakingviews. That’s helped by rising demand in countries like America and Brazil. Using that growth rate and assume an exit on the same 21 times multiple, and the company could be worth over $30 billion in 2029, delivering a return of more than 20% to EQT and its new co-investors. That’s according to a Breakingviews calculation that assumes the owners use debt equivalent to 6.5 times EBITDA, with interest costs of 8%. The return could even be higher if Nord Anglia is able to carry on buying up schools in the still fragmented sector.
But EQT is also taking risks by staying put. Private schools are facing a tougher regulatory environment: the UK is imposing higher taxes on establishments and its universities increasingly prefer to take students from state schools. China, Nord Anglia’s most profitable market according to Moody's, accounts for around 15% of group EBITDA according to a person familiar with the matter, has clamped down on foreign-owned operators. The risk is that Nord Anglia’s breakneck growth can’t be repeated. Moreover, an exit may be equally tricky in five years’ time: none of the 60 publicly-listed education companies globally has a market value of $14.5 billion: the closest peer, arguably, is Stride, worth some $2 billion. When it comes to resit the exit exam, Nord Anglia’s backers may once again choose to stay private.
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CONTEXT NEWS
Swedish investment firm EQT has formed a consortium with Neuberger Berman and the Canada Pension Plan Investment Board to buy international schools operator Nord Anglia Education for $14.5 billion including debt, the companies said on Oct. 21.
The consortium will own a majority stake in the international schools organisation which operates over 80 schools in 33 countries and educates more than 85,000 students.
EQT’s Baring Private Equity originally invested in London-headquartered Nord Anglia in 2008, floating it in 2014 before taking it private again three years later for $4.3 billion alongside CPPIB.
Nord Anglia Education revenue growth https://reut.rs/40cXZGm
Editing by Neil Unmack and Streisand Neto
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