Apollo Global, Abraaj Group invest in Laureate before possible IPO

Apollo Global, Abraaj Group to invest in Laureate before possible IPO

Laureate Education, a Baltimore-based firm that owns and operates universities around the world, is planning to raise $383 million by selling stock privately to a group of six investors that includes Apollo Global Management and The Abraaj Group.

The firm, which has been looking to raise money by selling stock in an initial public offering for more than a year, disclosed the plans in a recent filing with the Securities and Exchange Commission.

The private offering of 400,000 shares, which is expected to close Thursday, appears designed to give the firm some "breathing room," enabling it to pay down some of its debt in advance of an IPO or sale, said Matt Kennedy, an analyst at Renaissance Capital, which manages IPO-focused exchange traded funds.

A Laureate spokeswoman declined to comment on the plans, citing a so-called "quiet period" that precedes an IPO. The firm, which employed about 1,000 in Baltimore this fall, had more than 67,800 people working for it at 200 locations in 25 countries at the end of last year.

Laureate, which reported about $4.3 billion in revenue last year, carries more than $4.2 billion in debt, a heavy load incurred after it was taken private in a leveraged buyout in 2007 and expanded globally. The firm has been trying to reduce those obligations, which required nearly $400 million in interest payments last year.

This summer, it sold a number of universities in Europe, netting about $398 million, according to its SEC filing. The firm is looking at other dispositions, said Marlene Star, who follows education for the Mergermarket publication.

Laureate reported about $330 million in profits for the first nine months of the year, lifted in part by the sales. But the firm previously suffered losses every year since at least 2012, according to SEC documents.

Beyond reducing its debt, analysts said, it's not clear whether there are bigger implications to the private stock offering, which would give some major new players stakes in the firm.

New York-based Apollo would invest about $127 million through affiliates, according to the SEC documents. Through a spokesman, Apollo declined to comment.

The investment is a small sum for a firm with some $189 billion in assets under management, but a sign that the company, which prides itself on contrarian investments, is not backing away from its interest in private education, Star said. Apollo also has been working on a deal to buy the company that owns the University of Phoenix, one of biggest for-profit colleges in the United States.

Apollo is familiar with Laureate, which started in 1989 as Sylvan Learning Systems, a test prep and tutoring company. It provided funding for the spin-off of Sylvan's K-12 businesses in 2003.

"They're making a big bet on the space right now … and they're very familiar with the space, so I'm not all that surprised that they would be in the mix," Star said.

The Abraaj Group, a private equity firm with a specialty in emerging markets, also would invest about $127 million. The team handling media queries for the company is in Dubai and did not respond to a request for comment.

Laureate, which CEO Douglas Becker purchased in 1991, acquired its first university in Spain in 1999 and eventually shifted its focus to higher education overseas, changing its name to Laureate Education and carving out a niche in a relatively untapped market.

In 2007, an investor group that included Kohlberg Kravis Roberts & Co. L.P. and Snow Phipps Group took the firm private in a $3.8 billion deal, including $1.7 billion in debt. Affiliates of KKR serve as lenders to the firm and have received millions in interest payments, according to the SEC documents.

Given the typical timeline of private equity deals, experts said those investors are likely ready to exit, though both KKR and Snow Phipps are participating in Thursday's private stock offering. Both declined to comment.

Laureate registered with the SEC for an IPO last year, but those plans have not moved forward amid a turbulent market, regulatory scrutiny of for-profit educators and some Laureate-specific challenges.

Among other things, the firm drew attention during the presidential election for $17.6 million in payments made to former President Bill Clinton, who served as honorary chancellor from 2010 until shortly before his wife, Hillary, announced her presidential bid in April 2015.

nsherman@baltsun.com

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