AdvTech rights offer adds muscle to push into Africa

PRIVATE education conglomerate AdvTech seems to have regained the backing of its biggest shareholders after confirming proposals for an R850m rights offer on Monday.

The company has also reiterated plans to push further into the rest of Africa.

The rights offer is no surprise. AdvTech had last month signalled plans to formulate a new financing strategy to underpin its revamped growth prospects contained in its accelerated R3bn rolling investment programme. The company also recently spent R1.1bn to acquire private school businesses Maravest and Centurus. AdvTech sits with debt of about R1.8bn, expected to stretch to close to R2bn at the end of the financial year to end-December.

Gearing may have been too tight for AdvTech to execute its growth strategy with market watchers agreeing its stronger share price — a mix of new investment activity, strong organic growth and the (unsuccessful) R6bn takeover by rival Curro — made it an opportune time to tap shareholders for more capital.

AdvTech chairman Chris Boulle said the rights issue would provide financial flexibility to pursue an additional R1bn worth of greenfields and acquisitive growth opportunities that had already been identified.

Acting CEO Frank Thompson indicated the rights offer — the “pitch price” for which has not yet been set — had the backing of most of AdvTech’s biggest shareholders. This is a significant turnabout since some of them differed with its board in reportedly backing Curro in its unsuccessful takeover bid.

“We’ve rebuilt a stronger understanding with our major shareholders. We’re not at all concerned about raising the money.” He said it would be at least four weeks before the rights offer detail was finalised.

Vunani Securities analyst Anthony Clark speculated the rights offer price might be attractively pitched at about R10 per share. Mr Clark was surprised at the size of the rights issue, saying initial estimates suggested AdvTech might raise between R1bn and R1.2bn.

Mr Thompson said R850m was a maximum target.

“We could well opt to raise less than that amount.”

He said AdvTech’s strong cash flow attributes — especially as new schools came on stream with profit flows — precluded the need for a larger capital raising. He said there were great deal flows available inside and outside SA. “It’s early days, but there are currently significantly more and larger opportunities available outside SA.”

Source: Business Day