The R320 million investment by the International Finance Corporation (IFC), a member of the World Bank, into AdvTech was underlined on Monday, as the fast-growing education provider made good on its promise to grow into the tertiary education sector.
AdvTech, the owner of premium private schools such as Trinity House and Crawford College, acquired a 51% stake in distance-learning institution the University of Africa (UoA) for an undisclosed amount.
Although this is not AdvTech’s first foray into long-distance tertiary education, as it acquired a 51% stake in long-distance education institution Oxbridge Academy in 2016 – it’s the company’s first tertiary partnership outside of South Africa.
The UoA is a private distance-learning university based in Zambia with more than 2 000 students across the continent and offers bachelors, masters and doctoral degrees in bioscience and engineering, commerce and development studies, teacher education, law and humanities.
This is the first acquisition since the IFC invested in AdvTech in 2016 by snapping a 4% stake in the company to support its expansion ambitions. IFC joined the ranks of the Public Investment Corporation, Old Mutual, Coronation Fund Managers, and others as shareholders.
The UoA will grow AdvTech’s tertiary division to ten brands in its stable in sub-Saharan Africa including Varsity College, Rosebank College, Vega (an advertising and marketing institution), The Business School and The Design School of Southern Africa.
Electus Fund Managers’ equity analyst Damon Buss said the UoA is strategically a good fit with AdvTech’s tertiary businesses, as they can leverage off each other’s distance learning capabilities and use economies of scale to deliver quality courses at affordable prices. “The public tertiary education sector in SA does not have sufficient capacity to deal with the demand, which has created an opportunity for the private sector to step in. The same holds true for the schooling system in South Africa,” Buss told Moneyweb.
AlphaWealth portfolio manager Keith McLachlan said qualitatively, the acquisition of the UoA takes it to a new area of offering masters and doctorate degrees that it typically doesn’t offer. He said that AdvTech has the capacity for long-distance learning, as it already has the technology required given its technology-led education division Maramedia, which is the arm of its schools group Maravest. AdvTech acquired Maravest in 2015.
“In the short term, the acquisition may move the needle but not dramatically. This acquisition is part of AdvTech’s plans to be a leader in Africa through long-distance learning and this will play out in the next 10 to 20 years,” said McLachlan.
He added that the UoA would add 6% to 7% to AdvTech in terms of the number of students that are serviced by the tertiary institution.
AdvTech’s CEO Roy Douglas said in a statement that the company has a considered acquisition pipeline over the next year, which entails the expansion of both schools and tertiary institutions. It’s also targeting for 30% of its revenue to be generated by operations in the rest of Africa (excluding South Africa) by 2020.
Arguably, acquisitions will be crucial for AdvTech as it plans to double its earnings by 2018 – with the management and board agreeing to a stretched target of 100 cents normalised earnings per share from a base of 53.9 cents.
Buss said to achieve the stated target, AdvTech would need to grow its headlines earnings per share by a compound annual growth rate of 23%. “This will be tough to achieve organically given the pressure on fee increases in South Africa. Hence AdvTech will need to do a number of earnings accretive acquisitions before the end of full year 2018,” he said.
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