Palamon reaps 15x gain from CEG sale

The £185m sale of the education provider to Bridgepoint is the sixth exit from Palamon’s 2006 fund

UK-based buyout firm Palamon Capital Partners has sold Cambridge Education Group, an international schools operator, to fellow European firm Bridgepoint for £185 million (€223 million, $303 million). 

The sale represented a return of 14.6x on Palamon’s original investment, with a total capital gain of £141 million and a 58 percent IRR, according to a statement. 

It is understood the enterprise value of £185 million consisted of £82 million of senior debt, £15 million RCS and £15 million of capital expenditure and acquisition facilities. Bridgepoint declined to comment.   

Palamon originally invested in CEG in 2007, sourcing the deal as a primary transaction directly from the founders. At the time, the business had revenues of just under £20 million and taught fewer than 500 students per year across two campuses in Cambridge and Canterbury. Now, it teaches over 3,000 students in three countries, and expects to record revenues of about £90 million in its current financial year.

Education has become one of the UK’s most successful export industries. According to Palamon, it is now worth about £17.5 billion per year.

The auction process, which was run by DC Advisory, took just two months and attracted a lot of interest, Louis Elson, Palamon’s managing partner, told Private Equity International. 

“It’s a very spotty market where you get [auction processes] that don’t work; the price drops or it drags on for a very long time. This was a very quick incredibly well managed process by DC Advisory that came out very strongly,” he said. 

Both Palamon and Bridgepoint declined to comment on the bidders, but it is understood that Warburg Pincus, European Capital and LDC were among the firms that were interested.  

Bridgepoint said it would provide CEG “with additional financial capacity to accelerate its push further into international markets”.

The firm acquired the business using its current €4.84 billion Bridgepoint Europe Fund IV, which secured a 12-month investment extension in the summer after it became apparent it would not need to fund as many add-on acquisitions as planned. Following the acquisition, this fund will be over 80 percent invested. 

The deal represents the sixth exit from Palamon’s €670 million 2006 fund, Palamon European Equity II. The firm said that these six deals had generated combined proceeds of €660 million, with a total return of 3.6x and an IRR of 28 percent. Almost two-thirds of the original investments remain in the portfolio.

Palamon recently closed an unusually-structured €210 million Auxiliary Fund, after struggling on the fundraising trail to convince LPs of its investment thesis. “When we say we’re investing in growth companies in Europe, [investors] laugh and say it’s an oxymoron,” Elson told Private Equity International recently. “But Europe is enormous, and pockets of growth are springing up.”

The new vehicle has an investment period of just two years, rather than the standard five to seven. Fundraising sources suggested at the time that this additional breathing space would not only give the market time to recover, but also allow Palamon to deliver more exits from its previous fund.