August 11, 2017 / 4:12 PM / a year ago

UPDATE 1-Kroton to focus M&A on onsite segments, diverse Brazil regions

(Adds targeted M&A segments, comments, share performance in paragraphs 1-9)

By Alberto Alerigi Jr.

SAO PAULO, Aug 11 (Reuters) - Kroton Educacional SA will seek to expand in Brazilian regions where it does not yet operate and in onsite campuses, as the country’s No. 1 for-profit education firm aims to resume growth following antitrust rejection of a local takeover.

In a conference call to discuss second-quarter results, management led by Chief Executive Officer Rodrigo Galindo said Kroton is looking for colleges as well as small- and mid-sized education firms to gobble up. Growing overseas is only an option for the company in the medium term, Galindo said.

None of the executives elaborated on the potential targets. Brazil antitrust watchdog Cade rejected Kroton’s proposed takeover of rival Estácio Participações SA on June 28, citing excess market power stemming from a tie-up that would have formed the world’s No. 1 for-profit education company.

To stem dependence on state-subsidized borrowers, Kroton forged a partnership with consumer finance firm BV Financeira SA to provide student loans, Galindo said. Both will share credit risk and profits equally, he said, noting that private financing will respond for 30 percent of new enrollments in the long term.

Galindo’s penchant for acquisitions and cost controls has allowed Kroton to outsize rivals and consolidate market leadership in most education market segments in Latin America’s largest economy. Profit rose 15 percent to 644.9 million reais ($203 million) last quarter, beating forecasts.

Earlier in the day, Kroton said earnings before interest, tax, depreciation and amortization came in at 700.2 million reais, beating the average consensus estimate of 633.7 million reais compiled by Thomson Reuters.

Shares soared 5.2 percent to 15.98 reais, an indication that investors are lauding Galindo’s strategy following Estácio’s failed takeover. In basic education, Galindo said mergers remain challenging because “that market is rather fragmented and there is not a clear consolidation driver.”

The number of Brazilian distance-learning students in arrears on their tuition fees or loans is not showing signs of abating yet, reflecting record unemployment and declining household income, executives at Kroton said.

However, defaults in the campus-learning segment are showing signs of improvement, Chief Financial Officer Frederico Abreu said in the same call.

($1 = 3.1751 reais)

Writing and additional reporting by Guillermo Parra-Bernal; Editing by Lisa Shumaker

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