Chinese firms eye U.S.-based Learning Care valued at up to $1.6 bln -sources

Bright Scholar Education Holdings

25/10/2017 11:36

* China's IDG Capital and Bright Scholar eyeing LCG - source 
    * LCG likely to be valued 10-12 times 2018 core earnings 
-source 
    * China child care mkt to grow to 3 trln yuan by 2020 
-M.Stanley 
 
    By Julie  Zhu and Kane Wu 
    HONG KONG, Oct 25 (Reuters) - Chinese suitors have indicated 
their interest in buying U.S. child care provider Learning Care 
Group (LCG) that has been put on the block by its private equity 
owner and could fetch up to $1.6 billion, said people with 
knowledge of the matter. 
    The second largest for-profit early education and care 
provider in North America has drawn interest from venture 
capital firm IDG Capital and Bright Scholar Education Holdings 
 BEDU.N , which is backed by property tycoon Yeung Kwok-keung, 
said one of the people.  
    Buyout firm American Securities LLC, which controls 
Michigan-headquartered LCG, has hired Morgan Stanley as an 
adviser for the divestment of its stake, two of the people told 
Reuters, adding the second round of bids are due in 
mid-November. 
    A successful bid for the asset would help a Chinese buyer 
take the brand back home and tap into the booming demand for 
early education and child care services in the world's 
second-largest economy, said one of the people. 
    While a source said IDG had participated in the first round 
of bidding, it was not known if Bright Scholar too had already 
submitted a bid. It was not immediately clear if there are other 
suitors in the fray or what level of regulatory scrutiny a 
Chinese bid may attract. 
    American Securities, IDG and Morgan Stanley declined to 
comment. LCG and Bright Scholar did not respond to requests for 
comment.    
    Chinese firms' interest in LCG comes against the backdrop of 
a sharp rise in birth rates tied to the end of the country's 
decade-long controversial one-child policy in 2015, as well as 
growth of urbanisation and an affluent middle class. 
    China's education market catering for children from nursery 
to end of secondary school will grow 8 percent annually to 
become a 3 trillion yuan ($451.50 billion) business by 2020, 
according to Morgan Stanley.  urn:newsml:reuters.com:*:nL8N1M61AY 
    To benefit from that growth, companies in China are looking 
to snap up leading learning brands overseas to make 
Western-style education accessible to the children of the 
rapidly growing ranks of affluent parents. 
    LCG, a provider of care services to children aged between 
six weeks and 12 years, is likely to be valued at around 10-12 
times its expected 2018 core earnings of about $130 million, 
said one of the people. 
    The deal terms for LCG are not yet finalized and there is no 
certainty that the two Chinese companies would participate in 
any further bidding rounds, said the people, who declined to be 
identified because the talks are private. 
     
    HIGH-QUALITY EDUCATION 
    IDG Capital manages more than 10 funds and has assets under 
management estimated at over $7 billion. Its portfolio companies 
 include Meitu Inc, a mobile hardware and app maker, and 
internet search provider Baidu Inc  BIDU.O .  urn:newsml:reuters.com:*:nL3N1HM1JN 
    Founded in 1994 with backing from Yeung, chairman of Chinese 
property developer Country Garden Holdings  2007.HK , Bright 
Scholar went public in New York in May and currently operates 
more than 50 international and bilingual schools across China. 
    Fifty-year-old LCG operates more than 900 schools mainly in 
the United States, and has the capacity to serve about 130,000 
children, according to its website. 
    "There will be a lot of room for LCG to expand its business 
in China, where the demand for high-quality schools and 
educational services is growing rapidly," said one of the 
people.  
    American Securities bought LCG from Morgan Stanley's private 
equity unit in 2014.  
    Financial terms of that deal were not disclosed, but sources 
told Reuters at the time that the deal valued LCG significantly 
higher than the $700 million valuation that Morgan Stanley had 
assigned on the company in 2008. (http://reut.rs/2z1ys7t) 
    According to Moody's Investors Service Inc, LCG generated 
$25 million to $40 million of free cash flow per year over the 
last few years, and $864 million of revenue in the 12 months 
ending in March. 
($1 = 6.6445 Chinese yuan renminbi) 
 
 (Reporting by Julie Zhu and Kane Wu in Hong Kong; Additional 
reporting by Greg Roumeliotis in New York and Clare Jim in Hong 
Kong; Editing by Sumeet Chatterjee and Muralikumar Anantharaman) 
 ((julie.zhu1@thomsonreuters.com; +852 2843 6519; Reuters 
Messaging: julie.zhu1.thomsonreuters.com@reuters.net)) 
 
Keywords: LCG M&A/CHINA