(Reuters) - For-profit education provider Apollo Education Group Inc APOL.O said on Monday it would be taken private for $1.1 billion by a group of private equity firms that have committed to financing the deal without borrowing.
The sale comes as turmoil in the debt markets is preventing some private equity funds from obtaining bank financing. The deal is a rare example of buyout firms funding an acquisition with their investors’ money in the hope of adding leverage to it later on when debt markets improve.
Apollo Education, which owns the University of Phoenix, will be taken private at an offer price of $9.50 per share - a 36.7 percent premium to its closing share price on Friday.
The buyers include funds of Vistria Group LLC, Apollo Global Management LLC (APO.N) and private investment firm Najafi Companies.
The parties agreed the “obtaining of any debt financing is not a condition” to the closing of the deal, and reaffirmed that it would be completed “irrespective and independently of the availability of any debt financing”, according to a regulatory filing.
Shares in Apollo Education rose 20 percent to $8.36 in afternoon trading on Monday in New York.
The U.S. for-profit education sector have faced tougher regulation since a series of government investigations in 2010 revealed low graduation rates and poor job prospects for students, who were also burdened with high debt.
Apollo Education, which competes against DeVry Education Group Inc DV.N and ITT Educational Services (ESI.N), said in January it was considering selling itself after years of declining student enrollments.
Jeffrey Silber, an analyst at BMO Capital Markets, said the offer price for Apollo Education was roughly equivalent to 1.5 times the firm’s earnings before interest, taxes, depreciation and amortization in the next 12 months.
“This compares with the public post-secondary median multiples of roughly 4.1 times and 3.5 times,” Silber said, but noted that comparisons were tricky given the “multitude of issues” Apollo Education faced, from falling student enrolment to regulatory problems.
Barclays, Credit Suisse and Evercore acted as financial advisers to Apollo Education, while Sullivan & Cromwell LLP served as its legal adviser. Paul, Weiss, Rifkind, Wharton & Garrison LLP was the legal adviser to the buyout consortium.
Reporting by Ankit Ajmera in Bengaluru; Additional reporting by Koh Gui Qing in New York; Editing by Don Sebastian, Greg Mahlich