Deal in Focus: HIG divests maiden Italian education buyout

When HIG acquired International School of Europe Group (ISE) in November 2014, the Italian education sector was an unexplored territory for private equity. According to unquote" data, the country lagged far behind its European neighbours: since January 2000, fund managers have completed 30 acquisitions in the UK across this sector, with a further 12 in France, four in Germany and three in Spain. Against this backdrop, Italy currently sees large corporates as the main players active in the sector.

In addition to Oakley Capital-backed trade buyer Inspired, which ultimately bought ISE from HIG at the end of August, several groups were interested in acquiring the asset, including NYSE-listed North Anglia and KKR's Cognita, a source familiar with the matter told unquote". Nonetheless, ISE's HIG-backed period is expected to highlight a new pathway to other deal-makers and usher in a market consolidation process across the country.

According to that same source, HIG originally completed a leveraged buyout with an equal mix of equity and debt, which reportedly saw the PE house acquire a 95% stake in the company for €19m from the founding Formiga family. At the time of the acquisition in 2014, the business was valued at 5x EBIDTA, while upon its exit ISE was understood to be valued in the region of 10-14x EBITDA.

Beyond the bel paese
The deal marked the first investment in the country for the GP, which claims to have started a consolidation process across the sector that will open up several opportunities for investors. Indeed, according to the source, the protracted economic crisis Italy is experiencing alongside its high unemployment rates seems to have changed the country's approach to education and increased interest in internationally-recognised programmes that offer access to foreign universities.

With this in mind, the GP selected ISE on the grounds of two crucial characteristics that gave the company a privileged position in the Italian market: the company was already one of the largest groups in a highly fragmented sector, in which the presence of private equity investors was still unknown; and it had a prominent international structure as a result of its education programme, the International Baccalaureate.

At the time of its acquisition by HIG in 2014, ISE was valued at 5x EBIDTA, while upon its exit this was understood to be in the region of 10-14x EBITDA

At the time of its acquisition by HIG, ISE was managing schools in Milan, Modena, Monza and Siena with a total of 1,500 pupils enrolled. Following the deal, the GP focused on both the educational programme and the business structure of the group to boost the company's expansion through strategic market consolidation. During HIG's holding period, the GP led the expansion of the schools in Modena and Monza and the opening of a kindergarten in Milan. At the time of the sale, ISE had 1,800 pupils enrolled and co-managed several facilities, including schools in Bergamo, Bologna, Brescia, Como and Rome. Furthermore, ISE is currently expecting to open a new school in Turin in partnership with Juventus Football Club.

As part of the deal, HIG managing director Raffaele Legnani and senior investment manager Stefano Miglorini took seats on the company's board, unquote" understands. During the private equity holding period, the group grew from €22m of revenues with €4m of EBITDA in 2014, to a turnover of €25m and €5m in EBITDA in 2015. For the current financial year, it expects to generate €28m in revenues and a €6m EBITDA figure.

People
HIG Europe – Raffaele Legnani (managing director); Stefano Migliorini (senior investment manager).
Oakley Capital - David Brickell (partner); Peter Dubens, David Keech (directors).
International School of Europe Group – Paolo Formiga, Franco Formiga (founders).
Inspired – Nadim M Nsouli (founder, chair).

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