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Adtalem (ATGE) to Buy Laureate's Walden University for $1.48B

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Adtalem Global Education Inc. (ATGE - Free Report) has inked a deal with Laureate Education, Inc. (LAUR) to acquire the latter’s leading online healthcare education unit — Walden University — for $1.48 billion in cash.

Walden University is a regionally accredited higher education institution that provides doctoral, master's, bachelor's and graduate certificate programs. The transaction is expected to be completed in first-quarter fiscal 2022, subject to regulatory approvals and other customary closing conditions. Until the closure of the transaction, Walden University will remain part of the Laureate.

Lisa Wardell, chairman and CEO of Adtalem said, "With a wide breadth of online, on-campus and hybrid healthcare program offerings, this acquisition will significantly expand our national healthcare education footprint and will further enable us to reimagine the future of healthcare education at a time when global health has never been a greater priority.”

Benefits to Adtalem

This leading global healthcare education provider — which includes American University of the Caribbean School of Medicine, Chamberlain University, Ross University School of Medicine, and Ross University School of Veterinary Medicine — will now become the premier national healthcare educator in the United States. Notably, the buyout will expand Adtalem’s national healthcare education footprint, and provide the company with various attractive short-term as well as long-term tailwinds.

Walden’s on-campus and hybrid educational offerings, high-quality online education along with diversified healthcare workforce will complement Adtalem’s strength as a leading healthcare workforce solutions provider. Adtalem will also gain multiple learning modalities that will better enable employer partners to solve complex challenges at scale.

Post completion of the deal, Adtalem will have 26 campuses in 15 states and four countries, 6,100 dedicated faculty members, and more than 90,000 students, of which 34% will be African American enrollees. Encouragingly, the combined organization will become the top provider of MDs, PhDs and nursing degrees to African Americans in the world. Also, it will attain the country’s leading position for total undergraduate and graduate nursing enrollment.

Acquisition Synergies

Adtalem expects to generate higher revenues in the long run with new and complementary educational offerings, increased student acquisition and retention capabilities, along with enhanced scale as well as coverage. Also, it anticipates substantial gross margin and EBITDA margin expansion, along with robust cash flow generation.

The company is likely to generate a compelling, pre-synergy adjusted EBITDA multiple of 8.4x, and $60 million incremental free cash flow (excluding special items) and 75 cents earnings per share in the first and second year of the transaction, respectively. Moreover, it projects cost savings of approximately $60 million within 24 months of the closing of the transaction on the back of increased marketing spend and back office operation efficiencies.

Additionally, Adtalem expects that this deal will generate 10-12% ROIC in the first year of the transaction, indicating a significant increase from the current weighted average cost of capital of approximately 8%.

Our Take

Adtalem has been working on various initiatives to overcome challenges surrounding bottom-line performance. Also, it is transforming to a workforce solutions provider via solving increasingly complex talent supply challenges for healthcare providers and has been collaborating with various organizations.

Recently, its Financial Services unit’s member, ACAMS, teamed up with ElephantThink to deliver its first totally online web-based compliance coaching program to Dutch banking group ING. Also, it has launched a Certified Transaction Monitoring Associate program, which will help compliance staff in reviewing, investigating and escalating the transactional alerts that may require the filing of suspicious activity reports.

However, owing to COVID-19 impacts on ACAMS and Becker, it witnessed lower revenues in fourth-quarter fiscal 2020. ACAMS was hurt by the cancellation of in-person conferences, and the temporary closure of CPA test taking centers as well as constrained spending on B2B customers ailed Becker.

Shares of this Zacks Rank #5 (Strong Sell) company have declined 14% in the past three months against the industry’s 10.1% growth. The company has been recording lower profits over the last few quarters mainly due to certain restructuring charges related to the closing of the Ross University School of Medicine campus in Dominica and real estate consolidations. Also, it has been grappling with increased marketing-related expenses.

Nevertheless, the recent moves will probably help the company — which shares space with American Public Education, Inc. (APEI - Free Report) and Strategic Education, Inc. (STRA - Free Report) in the same industry — to spur growth and regain momentum.

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