Pearson Plc., the world's largest education service provider and one of the leading media groups, is in advanced stages of discussion with Educomp Solutions Ltd to buy out the latter's 50 per cent stake in Indiacan, a vocational education company formed as a joint venture between the two companies, at least two sources with direct knowledge of the development told VCCircle.
While the details of the company's valuation are not known, sources close to the development peg the deal value (for 50 per cent stake) in the range of Rs 350 crore ($70 million) to Rs 500 crore ($100 million).
In 2009, Pearson Plc. invested $17.5 million in Indiacan (then known as Educomp Vocational Education Pvt Ltd), thereby valuing the company at $36 million.
Educomp scrip rose 5.33 per cent to close at Rs 220.3 a share on the BSE in a strong Mumbai market on Tuesday. At this price, Educomp itself is valued at Rs 2,112 crore.
An e-mail query sent to Shantanu Prakash, chairman and managing director of Educomp Solutions, and Khozem Merchant, deputy chairman of Pearson India, did not elicit any response till the time of writing this article. In an e-mailed response to VCCircle, Pearson's London-based spokesperson said, "Pearson has a long-standing policy not to comment on reports, rumours or speculation regarding acquisitions or disposals."
Indiacan positions itself as the country’s largest vocational education company and offers courses in English, broadcast journalism and IT, among others. The company has 308 centres as on September 2011, according to sources.
While the financial details of Indiacan are not available, according to the market disclosures of Educomp, the revenues for Higher Learning Solutions (HLS) segment of Educomp that includes Indiacan (a JV with Pearson) and Raffles (a JV with Raffles) was Rs 10 crore for the first half of FY2012.
“Considering this is Educomp’s share and Educomp holds 50 per cent in both JVs, total revenues should be Rs 20 cr from H1 FY12,” said an analyst, who did not wish to be named. According to VCCedge, the financial research platform of VCCircle, Indiacan had a total income of Rs 10 crore in March 2010 and a negative PAT of Rs 7.9 crore.
Last year, the British media group Pearson Plc. acquired Bangalore-based education-cum-consumer Internet services firm TutorVista Global Pvt Ltd by increasing its stake to 76 per cent for $127 million (Rs 577 crore) and valued the company at $213 million (around Rs 960 crore).
Analysts view that scale may be a challenge in vocational training as it is a franchisee-based model and the returns for the franchise is highly sensitive to royalty payments. However, whoever can crack the scale and the formula of building a countrywide and multi-discipline vocational training group in India, will have a lot to gain.
According to a recent report by Anand Rathi Financial Securities, a Mumbai-based investment bank and stock broking firm, the Indian education sector is bigger than the USA with $600 billion in yearly overall education spend at comparable prices. India’s yearly growth in overall education spend at 15 per cent is also one of the fastest in the world, it said.