AdvTech on the acquisition trail

2014-11-30 15:00

After consolidating ownership in the ‘premium’ schools market, company casts its gaze beyond the borders of SA to broaden its scope through growth and acquisitions

JSE-listed private education group AdvTech has consolidated just about all the high-fee “premium” private school groups on offer in South Africa and is now looking further afield for growth and acquisitions.

This week the company announced the acquisition of the Maravest Group, consisting of six schools and an educational publishing affiliate, Maramedia Publishing, for R450?million.

The private school business has experienced a lot of consolidation at the high and low end of the market. But fast-growing Curro Holdings still remains the market leader in this sector.

The AdvTech acquisition of Maravest follows shortly after it announced the acquisition of another “premium” school group, Centurus Colleges, for R712?million and Kathstan College in Benoni.

Taken together, these deals will boost AdvTech’s schoolgoers from 13?500 to about 23?000 – still well short of Curro’s 29?000 learners.

Curro has also grown through acquisition by buying 12 of its current 32 schools.

But the scope for further consolidation is shrinking fast. After Maravest, the only other “premium” school group left is Reddam House, which has two schools in Cape Town and one in Johannesburg.

“There aren’t any more players of substance,” says AdvTech CEO Leslie Maasdorp.

Future acquisitions would have to aim for the plethora of smaller targets, often individual schools, that do exist.

AdvTech hopes to settle almost the entire consideration for Maravest in shares. This would involve roughly a 13% dilution of existing shareholders.

On the plus side, Centurus and Maravest are past the inevitable lossmaking period private schools go through when they open.

There are economies of scale in the sector from things like centralised services for multiple schools, says Maasdorp.

He cites collecting fees from tardy payers as an example.

Three of the Maravest schools fall in the “lower-fee” categories, with one of these falling in the “low-fee” bracket.

“This marks our entry into that space,” says Maasdorp.

The stratification of private schools by cost is informally done and AdvTech’s premium schools charge between R60?000 and R100?000 a year in fees.

The middle segment where Curro is concentrated has fees between R24?000 and R36?000 a year, while “low fee” means fees between R15?000 and R20?000, a space Curro has entered through the Meridian school brand.

According to Maasdorp, AdvTech is still feeling out the low end and is avoiding the true low end for now.

Besides looking at adding areas around Johannesburg and Pretoria to its offering of independent education services, AdvTech is also looking across South Africa’s borders.

Entering a new market would involve buying an existing school or schools to avoid building from scratch, where the regulatory environment was not properly understood, he told City Press.

The “phenomenal” growth of private education across the developing world was something governments embraced, he said.

These schools relieve the fiscal constraints of governments and cater for the fact that public schooling systems cannot keep up with the number of schoolgoers.

“The public and private schools do not compete,” said Maasdorp.

“The answer to the education crisis is to fix the public system.”

“It is not an either-or situation. The idea that we are raiding the public sector is not correct.”

Because private schools, by definition, only take students who can pay fees, the proportion of learners whose families cannot pay fees will become proportionately larger in the public sector if the trend continues indefinitely, eroding the resources in the public system.

Any conflict between private education and the sustainability of public school systems would only arise in the very long run, said Maasdorp.

Even then, “a doomsday scenario is unlikely to arise”.

Only 500?000 of South Africa’s 12.5?million learners were in private schools, said Maasdorp.

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