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Afya has announced the acquisition of Unidompedro and Faculdade Dom Luiz, adding 300 medical school seats in Brazil. The purchase price is R$660.0 million, with payment split between cash and installments. The transaction is subject to regulatory approval.
Positive
Acquisition of Unidompedro and Faculdade Dom Luiz adding 300 medical school seats in Brazil.
Expected Net Revenue of R$267 million in 2027, with over 95% from the Medicine course.
Negative
Payment of R$312.2 million in 10 annual installments subject to authorization maintenance of 175 seats.
The transaction's closing is subject to approval from antitrust regulators.
Insights
Afya Limited's acquisition of Unidompedro and Faculdade Dom Luiz represents a strategic growth movement, indicative of the company's ambition to expand its educational offerings in Brazil. The operational addition of 300 medical school seats, especially in a populous city like Salvador, can potentially scale Afya's market presence and revenue base. The structured payment terms, with a combination of upfront cash and installment payments tied to regulatory outcomes, reflect a cautious approach to financing the deal, mitigating financial risks associated with the uncertain authorization of 175 seats. The transaction's EV/EBITDA ratio of 4.2x at maturity is within a reasonable range, compared to sector benchmarks, suggesting financial prudence in the acquisition valuation. Considering the growth projections for 2024 and 2027, the acquisition seems poised to significantly enhance Afya's net revenues, with a high concentration on the profitable Medicine course. However, investors should be aware of the risks involved in the conditional payments and the reliance on regulatory decisions, which could impact the financial outcomes of the deal.
From a market perspective, Afya's acquisition taps into the high demand for medical education in Brazil. By securing 300 seats in high-density urban areas, they are well-positioned to capture a significant share of the education sector. The potential upside from participating in the Mais Médicos 3 Program, with a bonus payment per granted seat, adds an incentive layer that could further boost profitability. Still, it's critical to consider the competitive dynamics and regulatory complexities of the Brazilian educational sector. Antitrust approval is another hurdle that still needs to be cleared and any delay or denial could affect investor sentiment and the stock's performance. The disclosed revenue projections suggest a robust growth trajectory, which if realized, could solidify Afya's leadership in the market and positively influence its stock price in the long term.
This acquisition hinges on several legal and regulatory milestones. The reference to Ordinance 630/2020 and subsequent court decisions highlights the importance of a stable regulatory environment to the deal's success. The conditional nature of the payment structure, specifically tied to the authorization of the 175 seats, introduces a legal risk that investors should consider. The outcome of the court proceedings will play a pivotal role in determining the final cost of the acquisition to Afya. Additionally, the deal is subject to antitrust approval, a common requirement for acquisitions that could have market-concentrating effects. The legal framework in Brazil for educational entities can be complex and any shifts in regulatory stances or legal interpretations can significantly influence the realization of the projected revenues and synergies from this acquisition.
NOVA LIMA, Brazil--(BUSINESS WIRE)--
Afya Limited (Nasdaq: AFYA; B3: A2FY34) (“Afya” or the “Company”), the leading medical education group and digital health services provider in Brazil, announced today that it has entered into a share purchase agreement for the acquisition, through its wholly-owned subsidiary Afya Participações S.A., of 100% of the total share capital of Unidom Participações S.A. (“Unidompedro” and “Faculdade Dom Luiz”), present in Salvador (BA), Luis Eduardo Magalhães (BA), Barreiras (BA) and Ribeira do Pombal (BA).
The acquisition will add 300 operational medical school seats to Afya in Salvador, one of Brazil's largest cities. The authorization request for these 300 seats was made to the Ministry of Education ("MEC") before the Mais Médicos´ Law was enacted and MEC concluded its analysis and issued Ordinance 630/2020 ("Ordinance") in 2020 to partially authorize the operation considering 125 medical seats. In 2021, as a result of a judicial order, MEC reviewed the Ordinance to authorize the 300 seats initially requested by Unidompedro. Said decision was confirmed by a judgement in 2023. Currently, Unidompedro has 300 seats authorized, of which 125 are final and 175 are subject to a final conclusion of the aforementioned court proceedings.
The aggregate purchase price is R$ 660.0 million, and the Net Debt will be deducted at closing. The price and payment conditions are:
R$ 347.8 million will be paid in cash at the closing date; and
R$ 312.2 million will be paid in up to 10 annual installments of R$31.2 million, adjusted by the CDI (Interbank Certificate of Deposit) rate, and it is conditioned upon the maintenance of the authorization of the 175 seats in each of the prior year. The remaining payment balance is accelerated if a final and non-appealable conclusion of the aforementioned court proceedings, within the 10-year payment period, confirms the authorization for the 175 seats. In turn, if, within the same 10-year payment period, a final conclusion of the aforementioned court proceedings does not confirm the authorization for such 175 seats, the remaining payment balance will no longer be due.
Afya expects an EV/EBITDA of 4.2x at maturity and post synergies. 2024 projected Net Revenue for Unidom Participações S.A. is R$ 110.5 million, of which around 88% is expected to come from the Medicine course. In 2027, at the medical school's full maturity, the projected Net Revenue is R$ 267 million, which, over 95%, will come from Medicine.
Additionally, if Unidompedro or Faculdade Dom Luiz wins the bid processes in the Mais Médicos 3 Program, an additional payment of R$250 thousand per granted seat will be made.
The transaction's closing is subject to customary and usual conditions including approval from antitrust regulators.
Afya is a leading medical education group in Brazil based on the number of medical school seats, delivering an end-to-end physician-centric ecosystem that serves and empowers students and physicians to transform their ambitions into rewarding lifelong experiences from the moment they join us as medical students through their medical residency preparation, graduation program, continuing medical education activities and offering digital products to help doctors enhance their healthcare services through their whole career.
