More than Dilutive M&A: Governance Concerns Drive Our Downgrade to EW

Research evidence excerpt

More than Dilutive M&A: Governance Concerns Drive Our Downgrade to EW

IdeaMgreater scrutiny from investors.

• Demanding Valuation: Minimum EV of 10.6x EV/EBITDA LTM (vs. ANIM's

3.8x prior to the announcement) leaves minimal room for execution errors.

To be accretive, post-synergy multiple would need to fall meaningfully.

• Limited Disclosure: Management indicated the potential to improve FMU

margins from 19% to 41% (based on the company's 34-47% average), though

without providing further details on cost synergy drivers and timing. We

calculate that, even if FMU margin doubles, its revenue would need to grow

at least 30% to support the valuation — a plausible, but challenging,

multiyear goal.

• Market Overlap: FMU was divested to Farallon in 2021 due to antitrust

concerns during Anima's acquisition of Laureate Brazil assets. Although both

FMU and Anima have since lost share in São Paulo, there could be CADE

overhangs and commercial execution risks in a city where Anima already

operates two large brands (Anhembi Morumbi and São Judas).

• Judicial Reorganization Issues: FMU remains under judicial reorganization

following enrollment declines since the pandemic. This may bring additional

financial and operational complexity to an already leveraged company.

• Execution and Capital Allocation: While the post-pandemic rate

environment was not supportive, investor perception is that the Laureate

integration took longer than expected and involved commercial and

operational disruptions that weighed on Anima's perceived quality. In

addition, the company's decision to distribute R$178m in extraordinary

dividends in 3Q24, shortly after leverage fell below the 3.0x covenant, raised

questions about capital allocation priorities given most minority holders