Early Monday morning, for-profit educator Laureate
In addition to chairman and CEO Douglas Becker, the buyout team includes 10 private equity shops, including the private equity arms of Citigroup
Relatively speaking, this price values Laureate at an 11% premium to its closing price on Friday and a 23% premium to its closing price Jan. 4, the day before its board of directors authorized negotiations with the investor group. Of course, if you'll kindly check your ticker tape, you'll notice that the stock is already up 13% since Friday on the news. Why? Well, this goes back to the tentative nature of the board's acceptance of the offer. It accepted, but subject to a "go shop" provision that permits the board to seek out competing -- better -- bids. Apparently, now that investors know the company is "in play," they're gambling that someone will be willing to best management's offer.
Let's see what the chances of that are:
Price-to-Sales |
Price-to-Earnings |
Price-to-Tangible Book Value |
Projected Growth Rate |
Enterprise Value-to-EBITDA |
|
---|---|---|---|---|---|
Laureate |
2.9 |
34.6 |
10.0 |
22% |
14.4 |
Apollo Group |
2.9 |
16.8 |
11.0 |
15% |
8.4 |
Strayer |
6.3 |
32.0 |
9.5 |
18% |
16.6 |
DeVry |
2.3 |
33.6 |
8.4 |
19% |
15.9 |
ITT |
4.3 |
29.7 |
33.2 |
20% |
15.3 |
While there's no obvious undervaluation here, it does seem to me that objectors to the buyout will have plenty of ammunition in arguing against management's offer and in favor of seeking more generous suitors. True, compared to embattled industry leader Apollo Group, the offer currently on the table for Laureate seems fair by any measure. However, looking at the EV/EBITDA valuations for Laureate, versus those for Strayer, DeVry, or ESI, I do see room for improvement -- especially given that Laureate is expected to grow earnings faster than any of those three educators, shrinking its EV/EBITDA multiple more and more over time.
My guess: This transaction is not a done deal. Don't be surprised if a bidding war breaks out.
Educate Inc.
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Fool contributor Rich Smith does not own shares of any company named above. The Fool's disclosure policy reminds you: Everybody knows that smokin' ain't allowed in school.