Dubai: The UAE’s kindergarten-to-12th grade education space is turning into a top attraction for investors, whether it’s through IPOs or through deals such as the one the global fund manager Brookfield just did with GEMS - the UAE's biggest operator of schools.
Based on the UAE population growth estimates, the ‘existing K-12 school network is primed for double-digit annual growth’, said an analyst. “The question then is can school operators build new schools fast enough,” he added. “Clearly, with the likes of Brookfield set to buy a stake in GEMS and the success Taaleem had with its IPO last year, investors are putting their money on the UAE education sector's growth story.
"With the Brookfield deal, the next obvious step for GEMS would be to prep for an eventual IPO."
For now, GEMS, part of the Varkey Group, will sell a stake to a consortium led by Brookfield, which has been picking up significant assets in the UAE in the recent past. Before this, Brookfield, headquartered in Canada, had bought into the logistics portfolio held and operated by GII (Gulf Islamic Investments) in the UAE.
We are well-positioned for future growth, thanks to a supportive operating environment that is driving record enrolments, underpinned by a strong UAE economy and a growing population
GII, incidentally, is part of the consortium that is buying the stake in GEMS, which is the biggest school operator in the UAE. GEMS had been in talks with potential buyers for some years now, according to banking industry sources. Some of the biggest institutional investors in the UAE had at various times looked at a possible stake buy in GEMS, the sources add.
As far as investors go, Brookfield sure is big enough, with $900 billion as assets under management by end 2023.
Dubai Islamic Bank (DIB), the largest Islamic bank in the UAE, said on Monday that it spearheaded a $3.25 billion infinancing facility for GEMS Education, which along with the investment by a consortium of regional and international investors led by Brookfield, enabled GEMS to refinance its existing debt and exit the majority of the position of minority shareholders.
"DIB led this transaction, commencing discussions with the group in 2023 to develop alternatives towards refinancing their existing debt and create the financial framework enabling the exit of existing minority shareholders," the top lender added on Monday.
For GEMS, a 'new chapter'
With Brookfield and partners coming on board, GEMS finds itself in a position to ‘start on a fresh chapter’, the sources add.
“GEMS has simultaneously secured financing commitments from a consortium of UAE banks to finance the transaction - including funding the repayment of GEMS’ existing financing arrangements,” said a statement.
This is cited as critical to the deal, with completion of the transaction expected in ‘Q3-2024 and conditional on satisfaction of certain conditions by all parties’.
"GEMS has experienced significant growth over our 65-year history and has become one of the world’s most respected education companies," said Sunny Varkey, founder of GEMS. "As a long-term, operationally focused investor, Brookfield’s partnership with the family and the GEMS community demonstrates the breadth of the business, the quality of the education, and the critical infrastructure that we deliver for the UAE."
Buzz around GEMS deal
In recent weeks, there had been heavy speculation that GEMS was about to land a deal. The immediate priority for GEMS is to work towards repayment of its legacy debts.
"GEMS is the elephant in the room when it comes to education in the UAE,' said an analyst with GCP. "Brookfield’s binding agreement increases the visibility of GEMS' path to an IPO in the medium-term which is good news for the company as well as the UAE equity markets."
Who comes in, who exits
As Brookfield makes an entry into GEMS, some of the current shareholders will make an exit.
This will see Khazanah Nasional Berhad - the Malaysian wealth fund - exiting, while funds managed by CVC Capital Partners will 'also substantially exit their stake' in GEMS.
A Luxembourg-headquartered private equity player, CVC Capital Partners had made its entry into GEMS in July 2019. At the time, it said 'GEMS Education (was) the world's largest provider of private K-12 education by revenue'.
"The CVC Consortium will acquire approximately a 30 per cent stake in the company from the existing shareholders," the statement added.
This week, CVC's Özgür Önder, Senior Managing Director and Head of Middle East, issued a statement after the Brookfield deal: "GEMS was CVC’s first private equity investment in the Middle East and we remain fully committed to investing further in this attractive region."
Completion of the transaction is conditional on the Brookfield consortium 'satisfying certain conditions' by end of this month. As part of the new transaction, CVC Consortium will retain a stake in GEMS and 'welcome Brookfield as new shareholders'.
