Kroton Day: M&A September 2011 KROT11

Kroton Day: M&A September 2011 KROT11

Extensive Consolidation Opportunities in Post Secondary Education in Brazil Amount of Post-Secondary Institutions 245 1,2 milhões alunos Market Share - Post-Secondary Institutions (em # de alunos - 2009) 2.069 17,9% 23,7% 27,2% 3,6 milhões alunos Source INEP / MEC 2009 Públicas Privadas Source HOPER 2009 Top 5 Top 10 Top 15 98 2

Pitágoras IUNI 18 acquisitions in 12 months (Kroton & IUNI), 1 acquisition in 2010 (Kroton) and 3 acquisitions in 6 months (Kroton) FIPAG Pitágoras Guarapari NABEC Pitágoras Guarapari Unilinhares Pitágoras Linhares UMEP Pitágoras Londrina FATEC Pitágoras Londrina FADOM Pitágoras Divinópolis São Francisco Pitágoras Divinópolis FAMA São Luis FAMA Imperatriz União Ponta Grossa JAPI Pitágoras Jundiaí UNIMINAS Pitágoras Uberlândia FACTEF Pitágoras Teixeira de Freitas Dec. 2007 Jan. Mar. Apr. May Jun. Aug. Sep. Oct. Mar. 2010 Jul. 2011 Unicem Primavera IUNI Primavera Facdelta, Salvador IUNI Salvador Unicem IUNI Tangará IUNI Unicen Sinop Aeroporto IUNI Sinop Aeroporto Unitas IUNI Tangará Facsul Itabuna IUNI Itabuna UNIR IUNI Rondonópolis UESP IUNI Rondonópolis 3

FAMA Acquisition São Luis Maranhão Process Transaction Datas Non-binding: Jul/10 starts the process; Nov/10 reinitiating; Mar/11 signing NB Due Diligence: Mar/11 a Jul/11 Closing: 07/18/11 Total Process: 12 months EV Total = R$ 47mn EV Unit = R$ 24mn Debt = R$ 18.6mn Equity = R$ 28.4mn EV/Students = 4.79k Payment Flow EV Building= R$ 23mn (+ stock option of the land R$ 3 mn) Guarantees: Payment Flow and Lease 18/jul/12 18/jul/13 18/jul/14 18/jul/15 18/jul/16 FAMA SL (R$ 000) 4.970,88 5.219,42 5.480,39 0,00 3.828,84 IPCA 5,0% 5,0% 5,0% 5,0% 5,0% Opção de compra a ser exercida até 18/jul/13 Target Gross Revenues (2010): R$ 23.8 million. Students: 5,007 7 Courses: business,accounting, nursing, letters, pedagogy, secretariat and tourism. Investment Thesis Strengthening of Pitágoras Brand in Maranhão State (8k students). Synergy with Pitágoras unit: the building stands FAMA students (administrative consolidation) and complements courses. 4

UNIÃO Acquisition - Paraná Process Datas Initiation of the Process (Mar/11) Non-binding: 05/05/11 Due Diligence: May/11 to Jul/11 Closing: 07/14/11 Total Process: 4 months Transaction EV = R$ 8.0mn Guarantees: Payment & Lease and Building Debt = R$ 150k Equity = R$ 7.8mn EV/Student = R$ 5.38k IPCA* 5,0% CDI* 12,0% *Estimativa 14/jul/12 14/jul/13 14/jul/14 14/jul/15 14/jul/16 União (R$ 000) 681,38 739,30 802,14 870,32 944,30 (IPCA + CDI) / 2 8,5% 8,5% 8,5% 8,5% 8,5% Target Gross Revenues (2010): R$ 10.2mn Students: 1,486 3 Courses: business, law and information systems. Investment Thesis Strengthening Kroton s presence in Paraná State. Municipality (Ponta Grossa) with 310k inhabitants and micro-region with 800k inhabitants. 5

FAIS Acquisition - Sorriso Process Datas Initiation of the Process (Jan/11) Non-binding: 06/01/11 Due Diligence: Jun/11 a Set/11 Closing: 07/21/11 Total Process: 9 months Transaction EV = R$ 7.0mn Guarantees: Payment, Lease and Building Debt = R$ 1.5mn Equity = R$ 5.5mn EV/Student = R$ 5.38k IPCA* 5,0% *Estimado 21/set /12 21/set /13 21/set /14 21/set /15 21/set /16 FAIS (R$ 000) 227,81 239,20 251,16 263,72 276,90 IPCA 5,0% 5,0% 5,0% 5,0% 5,0% Target Revenues (2011E): R$ 9.5 million. Students: 1,302. 7 Courses: business, pedagogy, accounting, law, nursing, information systems and agribusiness. Investment Thesis Strengthening Kroton s presence in Mato Grosso Municipality (Sorriso) with 70k inhabitants and microregion with 130k inhabitants, 80 km far from Sinop. Consolidation of a micro-region with high GDB per capita and strong presence of UNIC brand. 6

Where is Kroton focusing its M&A efforts? Target segments 1 In-Class Post-Secondary Education 2 Distance Post-Secondary Education 3 Primary and Secondary Education (Educational System, Schools) 4 Preparatory Courses (admission exams, public service exams etc.) 5 Vocational courses 6 7 Other courses (IT, languages, design, etc.) Development of content (educational games, etc.) 7

Extensive Opportunities! The challenge is focus! 2,314 Total Institutions 2,069 Private Institutions Target Priorization Rationale Regions where Kroton s brands are already known Regions with high growth potential (North, Northeast and Mid -west) Kroton s Priority Targets 345 Religious Organizations and foundations > 1,000 students Targets in regions where Kroton decided not to have exposure 192 102 2nd Priority 1st Priority 3rd Priority Targets: 639 sites in 269 municipalities* 345 sites as 1st priority with 1.4k Students 130 municipalities 2.7 M students in Post Secondary 4.2M students in Secondary Source: Company and Censo 2009 Note: (1) Includes all units in all municipalities, even with the same brand or Corporate Taxpayer s ID. 8

The priority targets are all over Brazil, but are concentrated in three target macro regions # IES by macro region 3 2 9 101 53 49 133 Norte North Nordeste North East Centro- Midwest Oeste Sul South Sudeste South East 2 12 12 14 10 3 12 4 20 20 18 4 1 13 6 12 11 26 41 5 7 83 TOTAL OF 345 IES: 70% IN THE NORTH, NORTH EAST AND MIDWEST REGIONS IES priority target 1 4 Source: MEC, INEP, IBGE. *Higher Education Institution - IES 9

Active participation of the CEO, Committee and Board Pipeline Meeting Agenda Pipeline update Setting priorities and definition of weekly plan Resolve issues involving active deals Meeting Frequency Weekly for M&A Team and Fortnightly for CEO Investment Committee Board of Directors Presentation of deals at the beginning of due diligence (DD) Approval of budget for DD Focus on DD Resolve potential issues Presentation of Investment Memo Presentation of due diligence results Discussion of issues and mitigating factors Approval of the deal Closing procedures Monthly Quarterly 10

Valuation is detailed and based on DCF and IRR Billing Structure Students Ticket Deductions Taxes New students Drop outs Graduating Tuition for new students Tuition for seniors Annual adjustment Scholarships Discounts Prouni / Pro-Muni / FIES Other deductions ISS PIS COFINS Cost and Synergy Structure Administrative Personnel Integration with Kroton s Shared Services Center (and elimination of redundancies) Optimization of administrative structure. Teachers Optimized course time model Expenses Savings on agreements related to services (security, advertising, cleaning, etc.), which are not signed for the whole of the Kroton group. 10% Zero-Based Budget Other items not considered (upside) New programs Elimination of Increase in ticket competition Capex avoided Working capital 50% 40% IRR Returns (R$ M) Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Payments (16.000) Dividends 0 786 3.985 4.632 5.340 5.962 Exit Equity 24.122 CashFlow (16.000) 786 3.985 4.632 5.340 30.084 Nominal Unleveraged Post-tax IRR 28,0% Capital Gain (R$ M) 28.827 x Money 2,8 11

Due Diligence Process Complete Approach Accounting/ Tax Legal Academic Regulatory Property Valuation Synergies / Management Market Structure Integration Key Outputs of Due Diligence Validation of Students Validation of FL Adjusted EBITDA Debt Realized and unrealized contingencies Guarantees Valuation Base and Synergies Examples of Due Diligence challenges X Invoicing directly to the cashier (not accounted) X Discounts not informed X Nonexistent students /Drop-outs X PDA above booked amount X PJs or non-booking of benefits X Non-payment of taxes in graduate course X Irregularities in property X Non-recurring expenses 12

Kroton is currently evaluating 36 opportunities of acquisitions... # de IES # de Alunos matriculados # de Alunos médio Preliminary Discussions 16 152.603 9.538 NDA s signed / Under Assessment 6 59.466 9.911 MOU under negotiation/ Due Diligence 11 92.622 8.420 Concluded 3 7.664 2.555 TOTAL 36 312.355 8.677 Source: Company and Censo 2009 Fonte: MEC, Kroton. 13

... and also 43 sites under prospect Sites 227,000 43 5,279 # Sites # Students Average students per site Region # Sites # Students Southeast 18 94,403 South 9 69,208 Mid-west 5 28,249 North 4 12,576 Northeast 7 22,199 Total 43 226,635 14