Gems to acquire 50% stake in four Egyptian schools

Education provider this year formed joint venture with Egyptian investment bank EFG Hermes

“We are committed to growth in the Egyptian market under terms set out in our joint venture with EFG Hermes, and look forward to building on our partnership,” said Dino Varkey. Satish Kumar / The NationalShow less

Gems Education, the UAE’s largest private school operator, said it exercised an option under an existing partnership to acquire an initial 50 per cent stake in four schools in Egypt, which it has been managing since last year.

The stake option is part of the company’s 50:50 joint venture with Egypt’s biggest listed investment bank EFG Hermes, which was announced in May. “We are committed to growth in the Egyptian market under terms set out in our joint venture with EFG Hermes, and look forward to building on our partnership,” said Dino Varkey, chief executive of Gems Education, in a statement on Monday.

The JV is part of plans by the two entities to tap into the Middle East and North Africa’s largest education market, which has more than 20 million students enrolled.

Under the arrangement, the parties plan to acquire more than 30 schools across Egypt. They aim is to invest $300 million in the sector over three years under EFG Hermes’ Egypt Education Fund, which closed its first round totalling $119m on Sunday.

This fundraising round exceeded initial target pledges ranging between $50m and $100m, EFG said. The fund aims to achieve an internal return of 25 per cent, and is targeting investors from the Arabian Gulf and Egypt to participate in the venture.

“In line with our first close for the Egypt Education Fund at $119m, this exercise of Gems’ call option sets the right structure in place for our future partnership,” Karim Moussa, head of asset management and private equity at EFG Hermes, said on Monday.

“With private equity activity in Egypt ebbing over the last few years, the fund’s success underscores our commitment to support Egypt’s recovery after a period of subdued investment activity.”

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Egypt, the Arab world’s most populous nation with nearly 100 million people, is becoming more attractive to investors as the country undertakes economic reforms and courts foreign investors who left after the 2011 political uprising.

The country's share of global foreign direct investment has risen 15 per cent in the past year since the reforms came in, and the number of new private sector businesses has increased 29 per cent year to date, Egypt's Minister for Investment and International Co-operation, Sahar Nasr, told The National this month.

The four schools in which Gems will acquire a stake are national and British curriculum schools, including the British International School Madinaty, two branches of Madinaty Integrated Language Schools and The British School Al Rehab.

The investment involves a phased roll-out plan over a five-year period catering for up to 40,000 students, Gems said.

The education provider owns and operates 49 schools with a combined 124,000 students across Mena. It continues to enter new markets and expand in existing ones - most recently deepening its operations in Saudi Arabia through a partnership with Hassana Investment company, part of the General Organisation for Social Insurance, signed in October.

The two parties agreed to invest up to $800m over the next decade to acquire and develop schools in the kingdom, with places for up to 130,000 students. The deal also includes the upgrading of existing schools and construction of new facilities.

In Saudi Arabia, the total number of students is forecast to grow at an annual rate of 3.5 per cent to 11 million by 2020 from an estimated 9.2 million in 2015, according to a 2016 report from Dubai-based investment bank Alpen Capital.

“Our international expansion comes close on the heels of our consolidation within the UAE market which has been our home base for over six decades,” Mr Varkey said in the statement on Monday.