Brazilian Education Giants Cogna and Yduqs Explore Merger Possibilities

Cogna and Yduqs, two of Brazil’s largest education companies, have rekindled merger discussions. The potential deal faces challenges due to differing views on including Cogna’s basic education business.

Cogna insists on incorporating its basic education division, while Yduqs shows no interest. This disagreement stems from the companies’ similar sizes, with Cogna‘s basic education segment playing a crucial role in maintaining balance.

In 2023, Cogna reported a net revenue of nearly R$6 billion ($1.09 billion) and an EBITDA of R$1.8 billion ($327 million). Yduqs achieved a revenue of R$5.1 billion ($927 million) and an operating profit of R$1.6 billion ($290 million).

In addition, Morgan Stanley serves as Yduqs‘ financial advisor for merger and acquisition talks. Cogna has not yet engaged a financial institution for these discussions.

The involvement of private equity firm Advent, a key Yduqs shareholder, adds complexity to the negotiations. Advent recently acquired a stake in Inspira, a school network controlled by a BTG fund.

Chaim Zaher, Yduqs’ largest individual shareholder, owns Grupo SEB and Conexia, both in basic education. This ownership structure could potentially lead to conflicts of interest.

Cogna’s Education Business Landscape

Cogna operates two basic education businesses: Vasta, listed on Nasdaq, and a textbook sales division. Vasta’s portfolio includes renowned teaching systems like Anglo and pH, generating an EBITDA of around R$400 million ($72 million).

The textbook sales business, featuring Saraiva, Ática, and Scipione publishers, reported a recurring EBITDA of R$175 million ($32 million) last year. Cogna acquired this division from Tarpon in 2018 for R$4.6 billion ($836 million).

This acquisition followed the rejection of Cogna‘s merger with Estácio by Brazil’s antitrust regulator, CADE. The decision was based on concerns about market concentration in distance learning.

Since then, the Ministry of Education has relaxed distance learning regulations. New players have entered the market, reducing Cogna and Yduqs’ combined market share to about 25%.

Currently, Vitru leads the distance learning segment. The company has engaged UBS BB and Itaú BBA to explore potential business combinations with various educational groups.

Sources suggest that Vitru’s most advanced talks are with Cruzeiro do Sul, which has hired BTG for negotiations. Cruzeiro do Sul is highly sought after due to its strong growth and low leverage.

The education sector’s revenue dropped from R$71 billion ($12.91 billion) in 2015 to R$58 billion ($10.55 billion) in 2022. This decline followed reductions in the government’s student financing program, FIES.

When contacted, Cogna, Yduqs, Cruzeiro do Sul, Vitru, BTG, and Morgan Stanley declined to comment on market rumors. Yduqs and Vitru issued statements acknowledging their ongoing evaluations of market opportunities.

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