Harmon Hall

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number

29753

Company name

Harmon Hall Holding, S.A. de C.V.

Country

Mexico

(IDA)

Sector

Other Training

Environmental category

Department

Reg Manufact, Agri & Services, CAF/CLA

Status

Active

Date SPI disclosed	June 21, 2010
Projected board date	July 22, 2010
Date revised SPI disclosed	July 15, 2010
Previous Events	Invested: August 19, 2010 Signed: August 11, 2010 Approved: July 23, 2010

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Harmon Hall was founded in 1966. Today Harmon Hall is the leading English language school chain in Mexico, with a network of 110 English schools in 63 cities and over 40,000 students in the whole system. Harmon Hall also owns and operates K-12 schools in the interior of the country.
Nexxus Capital Private Equity Fund III, L.P. acquired 60% of HH in April 2008. Since then, the Company has implemented a series of measures to improve the operations and profitability of the Company, which have resulted in a significant growth of revenues and EBITDA generation.
The transaction represents an equity investment for IFC which consists of two components: (i) the purchase of the selling shareholders’ shares and (ii) a capital increase in Harmon Hall to finance the expansion plans of the Company for the next 18 months.

Anticipated development impact of the project

By supporting Harmon Hall, IFC will have the following development impact: (i) expansion of access to high quality English education and primary and secondary education: Consolidation of Harmon Hall presence, as well as further expansion into new markets, will expand the availability of high quality English education in the country, which provides skills necessary to compete and advance in the national job market; (ii) creation of employment opportunities: as a result of its expansion, Harmon Hall hires additional teachers and sales personnel to serve its growing student base, thereby helping to improve living standards and contributing to human capital development; (iii) expansion of high quality training: Harmon Hall provides training support to all its personnel in order to ensure a healthy pipeline of high quality trained staff to serve its current and future schools; (iv) standard setting among English language schools: the high quality standards by which Harmon Hall operates will set a precedent in the English education market, which will generate pressure on other competitor schools to pursue accreditation and quality standards; (v) community engagement: Both K-12 and English schools provide scholarships to students who cannot afford the tuition. Additionally Harmon Hall has begun to engage with public schools to provide the English program within their regular program. By doing so, more low income students will have access to quality English education which today is inexistent in the public system.

IFC's expected development contribution

IFC’s expected additionality in the proposed investment includes IFC provision of: (i) support in assisting the Company’s IPO in a local or foreign stock exchange, (ii) the necessary capital when limited equity investors exist given the current the market conditions, (iii) advice in E&S best Practices. (iv) Global expertise and knowledge in the education best practices, and (vi) guidance in improving corporate governance initiatives.

Environmental and social issues - Category B

This Project will have limited impact on the surrounding environment and has been classified as a Category B according to IFC’s Environmental and Social Review Procedure, as issues can be addressed through known and accepted procedures and technologies to avoid or mitigate social and environmental impacts. The key social and environmental issues associated with the Harmon Hall Schools Project, which operate their own and franchised facilities, in leased properties, many of them shopping malls, include: developing an environmental and social management system (ESMS), addressing life and fire safety issues in their facilities and community engagement. General human resource policies are in place, with no evidence of restriction of freedom of association. The company will need to formalize some procedures and develop a site selection criteria and grievance mechanism for employees and neighbors.

IFC PROJECTS

RECENTLY DISCLOSED