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Brazil Education Giant Back in M&A Game With $590 Million Raise

Brazil Education Giant Back in M&A Game With $590 Million Raise

(Bloomberg) -- Brazil’s largest for-profit education company raised about 2.56 billion reais ($590 million) in a sale of the firm’s shares, a move to cut debt and pave the way for new acquisitions.

Cogna, formerly known as Kroton, offered a total of 232.4 million shares, including an additional allotment, with stock priced at 11 reais each, the company said in a regulatory filing Wednesday, confirming an earlier report by Bloomberg.

Part of the proceeds will be used to reduce leverage, with Morgan Stanley expecting net-debt-to-Ebitda ratio to drop to around 2.3 times from the current 3.6 times. Money will also be deployed for potential acquisitions of companies in the higher-education segment.

The offering “brings Cogna back to the M&A game that they used to lead in the past,” Morgan Stanley’s analysts led by Javier Martinez de Olcoz wrote in a report from Feb. 3. “Cogna has missed last year’s rally and a good M&A delivery could help close the gap with peers,” analysts said. Cogna gained 29% in 2019, versus a 100% advance for rival Yduqs.

Cogna is known for its appetite for acquisitions. In 2018, it acquired a controlling stake in Somos Educacao SA to take the lead in the K-12 education segment. The transaction came on the heels of a failed bid to purchase Yduqs (known as Estacio Participacoes SA at that time), which was barred by Brazil’s antitrust agency.

Cogna may also tap equity markets again later this year. The firm plans on carrying out a potential initial public offering in the U.S. of shares of its unit Vasta Educacao, according to a filing.

Shares of Cogna rose as much as 6.4% in Sao Paulo Wednesday, one of the biggest gainers on Brazil’s Ibovespa index. “Expectations of new M&A moves may support the stock, which had been battered ahead of the equity offering,” said Fernando Siqueira, a portfolio manager at Infinity Asset Management. “Brazil’s education market is still fragmented and a consolidation wave may take place,” he said.

Banks running the share sale included Banco Itau BBA, Banco BTG Pactual, Morgan Stanley, Banco Bradesco BBI, Credit Suisse, JPMorgan and Banco Santander.

--With assistance from Fabiola Moura and Felipe Marques.

To contact the reporters on this story: Vinícius Andrade in São Paulo at vandrade3@bloomberg.net;Rachel Gamarski in in Sao Paulo at rgamarski@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Steven Fromm, Janet Freund

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