GEMS planned to ride that wave and expand in the region opening markets in Saudi Arabia, Europe and North America with its newly raised capital treasure chest. Dubai outlook in 2006-7 called for doubling expat population over 5 years. GEMS story dove tailed with Dubai’s transformation as a regional banking, finance and trading hub. A US$ 112 million stake for 25% valued the enterprise at US$ 448 million. With 35 schools and 58,000 students, future growth trajectory with Abraaj’s backing projected a tenfold increase in schools and students to 350 schools and 500,000 students. In 2007 when GEM closed its first private equity round with Abraaj, it was already a significant player in school education in Dubai. Growth in primary school market was slowing, expansion focused joint ventures in North America had ended on a bitter note yet Saudi, Egyptian and European markets were looking to be promising.
GEMS’ recent growth was fueled by bank financed borrowing and strategic private equity investments over a thirteen-year run beginning 2006.īy August 2018, GEMS had borrowed US$ 1.25 billion dollars across multiple facilities secured by US$ 1.3 billion in assets. As of August 2018, GEMS operated 48 schools with 119,000 students and projected annual revenues of US$ 1.01 billion. Started six decades ago in 1968 with a small school in Dubai, United Arab Emirates, GEMS Education today operates the largest school system in Middle East.
Other items such as outlook for 2019, 20 were generated by extrapolating historical trends and proforma financial statements. Investor and institutional press releases filled in remaining gaps. Prospectus and investor memorandum for GEMS earlier publicly listed debt issues are available online. GEMS financial statements till half year 2018 were sourced from investor relations. Did CVC overpay for GEMS or did they manage to get a discounted deal in at the aftermath of GEMS cancellation of its IPO?ĭata for GEMS private equity case study was sourced from publicly available information. Is it? That is the question we want to ask and answer here. Considering GEMS was planning to go public at a slightly higher valuation a year ago, the CVC’s deal seems to be fairly valued. In its most recent round, CVC Capital Partners paid US$1 billion to acquire a 30% stake in GEMS Education, valuing the enterprise at US$4 billion. GEMS has run the course with three rounds of private equity investments (2007, 2013, 2019) two public debt issues (US$200 million and US$900 million) and multiple bank refinancing and credit extensions. As an investor if you have been following the K-12 and high school education segment in Middle East, it is impossible to not come across GEMS Education. “However, we believe that even in a draconian scenario, in which defaults or severities triple, yields should hold up relatively well.” Write to Liz Enochs.GEMS Education School System and its tango with institutional private equity investors, financial markets and banks in the region makes for a fascinating read. “Further home price depreciation and/or a double-dip recession may increase defaults and severities on these pools,” concluded the report. Using leverage, investors may be able to magnify their returns to anywhere from 15% to 30%, Barclays analysts calculated after analyzing two different leverage scenarios.
It estimates that senior bonds backed by FHA and VA re-performing loans can deliver yields of 6% to 8%. And the government guarantees, which cover much, though not all, of investor losses, make bonds backed by FHA and VA loans a good bet, says the report. Because the FHA and VA imposed strict underwriting standards, default rates on loans they guaranteed are typically much lower than on other subprime loans, even those where borrowers have missed some payments, says Barclays Capital. The report estimated the size of that market at $18.4 billion, with roughly 60% in agency residential mortgage-backed securities, and the rest concentrated among a few other issuers: Lehman Brothers Holdings, Goldman Sachs, Countrywide and UBS. Since re-performers are less likely to succeed in refinancing, the duration risk is more hedged, they said. “Senior bonds from FHA-VA re-performer deals provide a very stable yield profile even in dire economic scenarios and look very attractive with leverage,” said analysts Sandeep Bordia, Jasraj Vaidya, Dennis Lee and Aaron Haan. Re-performing loans are those on which borrowers missed some payments but then resumed paying on time. Investors should consider buying bonds backed by Federal Housing Administration and Veterans Administration re-performing deals, says a report released Friday by the investment banking arm of Barclays Capital.
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