Baring, CITIC Capital to buy Wall Street English from Pearson

The sale was the result of a strategic review of WSE and Global Education – which provides English language training and test preparation services to Chinese students wishing to study abroad – announced in February. The review followed Pearson announcing a record loss of GBP2.49 billion ($3.3 billion) in 2016, largely due to a write-down connected with the company’s US higher education business.

Global Education was sold to China-based Puxin Education in August. The initial plan was to seek a strategic partner for WSE, but ultimately Pearson decided a full disposal was the best course of action. Both divestments are intended to help the company focus on a smaller number of large-scale opportunities in the education space, according to a statement.

WSE is the world’s largest provider of English language training to adults. In 2016, the company served 180,000 learners and operated 70 directly-owned centers in China and nine in Italy, as well as 321 franchised facilities across 27 territories. Revenue came to GBP175 million last year, while adjusted operating profit and statutory operating profit were GBP7 million and GBP4 million, respectively. As of June, WSE had approximately 3,600 full-time equivalent employees.

Pearson bought the WSE China operation from Wall Street Institute (WSI) – then owned by The Carlyle Group – for $145 million in 2009. At the time, the business comprised 39 directly-owned centers across seven cities catering to 35,000 students. The following year, Pearson acquired WSI, which had around 340 franchised centers in 25 territories, from Carlyle and Citi Private Equity for $92 million.

Speaking at the AVCJ Forum earlier this month, Baring CEO Jean Eric Salata described WSE as an “undermanaged” subsidiary, and fairly typical of the buyout opportunities now emerging in China. “Previously you wouldn’t see anyone selling assets in China, especially multinationals because they wanted to invest in China,” he said. “Now, with slowing growth and a tougher competitive environment, if it’s non-core and too small, they will consider selling it.”

Baring has existing exposure to China’s education sector, having recently completed the $4.3 billion privatization of K-12 school operator Nord Anglia Education – which derives 40% of its EBITDA from China – in conjunction with Canada Pension Plan Investment Board (CPPIB). The deal represented an investment for Baring’s sixth fund and an exit for its third and fourth funds; the GP already held a majority stake in the business, having privatized it in 2008 and re-listed it in the US in 2014.

“The underwritten return we have on that deal, I would say in the upside case, probably 2-3x of our overall return would come from the China expansion strategy, if we are able to execute,” Salata added.

This reflects widespread PE interest in China’s private education industry – ranging from asset-heavy businesses like Nord Anglia to asset-light online platforms such as VIPKid and Zuoyebang – although some LPs have expressed concern about valuations.

Recent activity includes Primavera Capital’s participation in the acquisition of WorldStrides, a US-based provider of study-abroad programs for high school and university students, with a view to supporting expansion in China. There have also been successful US listings for Rise Education, RYB Education and Four Seasons Education, all of which have private equity backers.

CITIC Capital, which closed the US dollar-denominated tranche of its latest China fund at $1.57 billion earlier this year, also has experience in education. The firm’s portfolio includes Oriental Cambridge Education Group, a kindergarten operator that it acquired in 2014.

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• Topics
• Greater China
• Buyouts
• Consumer
• China
• Education
• Baring Private Equity Asia
• CITIC Capital