CPPIB CEO Mark Machin walks through the pension fund’s Toronto offices in this file photo.Mark Blinch/The Globe and Mail
The Canada Pension Plan Investment Board is counting on increasing global demand for reputable private schools in its latest investment in an education company.
The country's largest pension fund said Tuesday that it would invest in the privatization of Hong Kong-based Nord Anglia Education Inc., alongside current majority owner Baring Private Equity Asia. The company operates 43 international schools in 15 global markets that educate more than 37,000 students from kindergarten through to the end of high school.
CPPIB said the deal values Nord Anglia at $4.3-billion (U.S.) including debt, with an implied equity value of about $3.5-billion. Banks will be providing debt funding as part of the deal.
The international private school system is "highly fragmented," said Deborah Orida, head of private equity in Asia for CPPIB, noting that more than 85 per cent of the space is made up of single-school operators serving their local markets. The investors plan to build on Nord Anglia's existing network of locations – many of which are at full enrolment. The company also believes a wider network of schools helps attract talented young teachers who are drawn to the freedom to move between countries.
Nord Anglia has schools in Asia, Europe, the Middle East and North America and focuses on building and acquiring new campuses in locations with plenty of foreign direct investment, rising disposable incomes and large expatriate populations. Just under two-thirds of the students at Nord Anglia schools are ex-pats.
"I think education is one of the things – particularly in Asia – that we see people are willing to spend on, and it would be one of the last things people cut," Ms. Orida said. "That makes it a stable, resilient business in a growing market."
For CPPIB, the deal also ticks a few other boxes, including geographic diversification and the relatively consistent cash flow that comes from students' tuition fees.
As a business, Nord Anglia has been back and forth between public and private markets in the past decade. Baring Asia Private Equity first privatized the business in a $360-million deal in 2008 and later took the brand into new markets, including the U.S. In 2014, Baring raised $304-million in a public market IPO on the New York Stock Exchange, which valued the business at $1.7-billion, according to a Reuters report.
Instead of exiting the business over time, Baring has maintained about a 67-per-cent controlling stake. Ms. Orida said that CPPIB, Baring and Nord Anglia's management team see the potential to expand the business more quickly and efficiently outside the public markets.
CPPIB was familiar with the business through its investments in Baring's private equity funds. Ms. Orida said that CPPIB had been interested in Nord Anglia for several years, first as a public market investment, and then, after she became head of Asian private equity in June last year, as a direct investment.
"In many of their markets, they still have further opportunity for growth. Whether it be in parts of China, Southeast Asia, even in the Middle East, their schools are at capacity," Ms. Orida said. "The safest growth is expanding an existing school, because you've already built your reputation in that market."
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