Private equity firms General Atlantic and Dragoneer are big believers in the long-term potential of Brazil’s education sector.
The firms joined forces in December 2023 to delist Brazilian education technology firm Arco Educação from the NASDAQ exchange, in a deal estimated at approximately $1.5 billion in total enterprise value, with a view to building a more powerful platform with the infusion of fresh private capital and a reorganization of the business.
The bidders paid off shareholders who held traded stock, while the majority owners, the family of founder Ari de Sá Cavalcanti Neto, agreed to roll over their own holdings in the company, a leading provider of software solutions for K-12 schools in Brazil. The new acquirors had upped their initial proposed purchase price of $11 per share to the final purchase price of $14 per share, a remarkable 55% premium over the unaffected trading price. The founding family kept around 40% of the share capital and remains as controlling shareholders.
General Atlantic’s relationship with Arco dates back to its first investments in the Brazilian company back in 2014, notes Rodrigo Catunda, managing director and co-head of General Atlantic’s Brazil Office. The investment firm exited that initial investment in 2020, two years after Arco’s NASDAQ IPO, but retained a seat on the board. Two years later, it invested $50 million via a seven-year convertible notes, this time in partnership with Dragoneer.
“We started brain-storming alternatives to create value, and we saw that many companies were going private in the US,” Catunda says. “It looked like the right thing to do as we have a much longer view for Arco.”
Ultimately, the decision to take Arco private came down to a few factors. As a small cap company, the education group, meanwhile, was recovering from the financial impact of the Covid-19 pandemic, which had taken a toll on its bottom line. A sharp rise in interest rates in Brazilian interest rates since 2021 put further pressure on the company, which already had relatively high levels of leverage.
“We thought that, taking Arco private, management would be able to focus on the right things, and we would also create value for the company in the long term,” Catunda points out.
The priority from now on is to integrate the company’s business after a number of acquisitions, creating a platform that will provide a better experience for schools, Catunda says. The management team is also working on improving Arco’s financial metrics and making more investments in technology in order to introduce new tools such as artificial intelligence into the product.
“All our initiatives are long-term oriented,” Catunda says. “We are long-term investors and we love Brazil.”
He points out that Latin America represents today 10% of the GA’s global portfolio and is one of the group’s best performing regions. Furthermore, he says that the education sector in a country like Brazil presents plenty of growth opportunities as it faces huge challenges to meet its potential.
“We are technology investors, and we believe that technology is helping to address issues and taking the region into the next level,” Catunda says . “Brazil has an outdated education system, and Arco is helping teachers to improve the learning experience and students to improve their academic journey.”
Financial Advisor: Evercore
Counsel to Acquirors: Paul, Weiss (General Atlantic); Ropes & Gray (Dragoneer); Mattos Filho; Walkers
Counsel to Special Committee: Skadden; Carey Olsen; BMA – Barbosa Müssnich Aragão
Counsel to Arco: Davis Polk; Lobo de Rizzo; Maples Group
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