One might have expected something to give at private education business Curro Holdings. It was brought to market by Stellenbosch investment house PSG in 2011 as nothing more than a promising start-up business looking to tap a growing sweet spot in affordable private schooling.
Curro subsequently chalked up some astounding gains on the JSE, peaking at close to R60 in 2015 with the market enamoured with the group’s steep learning curve. Capital raising — to fund an aggressive school rollout and acquisitions — was a cinch. Curro even famously tilted at its more established rival, AdvTech. In 2017 the share was still trading above R50, commanding the kind of heady earnings multiple one might associate with AI ventures today.
But then things got tough. Really tough. Curro needed to build profitable capacity in its expansive school network when the economy pinched on household incomes and emigration took its toll on pupil numbers (see page 36).
Diminished prospects have been reflected in the share price, which was trundling at the 800c level before news of a R7bn buyout offer from the Jannie Mouton Foundation (JMF), a charitable organisation founded by legendary dealmaker and investor Jannie Mouton.
Mouton established PSG in 1995 via a takeover of PAG Holdings and later went on to found arguably the most successful South African business in the past 30 years in the form of Capitec. He also played a pivotal role in growing Curro from a single school into a private education juggernaut. Curro, it’s worth adding, also gave life to private university business Stadio.
There might have been some suspicion that Curro was in play when the JMF shifted its stake in the group to just over 17% in mid-April.
The buyout pitch seems perfectly timed, with Curro recently warning shareholders to expect not only a slip in pupil numbers but a drop in earnings as well.
The JMF is pitching a R13 a share offer to Curro shareholders — a hefty 60% premium on Monday’s closing share price. Under the current difficult circumstances, it’s unlikely that many minority shareholders will kick up a fuss. That said, settlement will be in the form of a combination of shares in PSG-aligned businesses — Capitec and PSG Financial Services — and cash. The ratio of the settlement instruments will be key, though it might be argued that Capitec shares are highly liquid and easy to cash out. Hopefully Capitec and PSG Financial Services shares hold their value during the dealmaking window.
The JMF will apparently use the bulk of its assets to effect the buyout. That’s a massive bet on private education.
But the foundation has indicated that it can have a far greater impact on local education by providing bursaries and building the schools’ infrastructure without being restrained by shareholders’ profit expectations. It has pointed out that developing school infrastructure and optimising capacity utilisation is a long-term process which can test shareholders with shorter-term investment horizons.
Cynics might argue this is a philanthropic bailout for a struggling Curro. Time will tell. Certainly it will be easy enough to monitor the progress of the schools; the campuses are dotted all over South Africa. Of course, it will also be much easier to make the necessary, and perhaps urgent, tweaks to Curro’s business model away from the gaze of shareholders and a sceptical market.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.