The timing of cautionary notices by ADvTECH and Curro Holdings - within two weeks of each other last month - has fuelled rumours that Curro, the larger private-school operator, intends to add ADvTECH's brands to its stable. But it is a moot point whether Curro can reasonably afford to do so.There are a number of factors that would make ADvTECH, which runs the Crawford and Trinityhouse schools, an ideal fit for the Curro group.AlphaWealth fund manager Keith McLachlan said that after ADvTECH's R712-million Centurus Colleges and R450-million MaraVest acquisitions, it had become predominantly a private-schooling group."Before these acquisitions, it wasn't the same as Curro," McLachlan said. "From the perspective of the tertiary and resourcing units, those wouldn't have fitted so well into Curro and they still don't ..."But the fit was now much better, because ADvTECH had prestigious high-end brands, while Curro provided more-affordable schooling.story_article_left1"ADvTECH is also sitting at a point where Frank Thompson [who left in October 2014] has come back as interim CEO, and they're really looking for a permanent CEO," McLachlan said.If the company were incorporated into Curro under Chris van der Merwe, there's "a natural fit of leadership and Curro has a good background in this department".But, McLachlan said, the factors weighing against such a transaction concerned the cash available to Curro."If Curro really is buying ADvTECH, [it] could pay cash or scrip or use a combination. If it pays cash, Curro will have to do another rights issue."It doesn't necessarily mean that [financial services group] PSG wouldn't underwrite and put in more capital, but another rights issue means more dilution." One funding option was to raise bridging finance and then do a rights issue to pay that off.McLachlan said that if the acquisition were based on scrip, the relative valuations of the two companies would become important."Curro is fairly valued, in my view. It's pretty much priced for perfection and there isn't much valuation uplift potential in the share price, while ADvTECH is cheap - that's why we hold it in the fund. I think it's worth closer to R14 to R15 than it is the R10 to R11 it trades at."He said if Curro were to pay in scrip, from an ADvTECH perspective - even if Curro were to pay a premium - there was a risk the scrip was overvalued."It does come down to the valuation they're willing to pay if this is actually a bid for ADvTECH that's going on."Michael Treherne, portfolio manager at Vestact, agreed that Curro would almost certainly have to do a massive rights issue - hot on the heels of its last one in February - if it was in fact ADvTECH's suitor."They'd have to offer quite a big premium to get it done. ADvTECH, given the low multiple they're trading on, would not accept much less."Curro's market cap is just over R11-billion and ADvTECH's is just under R4-billion, so you'd have to put a 10% to 20% premium on the market cap to get shareholders to take it."Treherne said the acquisition style of 57% Curro shareholder the PSG group, especially when the scrip for offer was considered expensive, was to issue shares to raise capital to spend."Maybe PSG has some cash they'd throw in to follow their rights, but I have the view that ADvTECH is simply too big to be taken over by Curro just yet."Said Treherne: "If you're a Curro shareholder, I don't think you'd like having to stump up even more cash, and I don't think PSG would want to dilute its rights if it doesn't have the necessary cash."He pointed out that since PSG's market capitalisation sat at R44.9-billion, it was unlikely the group had R4-billion to R6-billion available to follow its rights.story_article_right2Treherne said the other rumour doing the rounds was that former ADvTECH CEO Leslie Maasdorp, who recently left the group after only seven months in the position, had been rounding up investors because he had seen value in the company."We thought that was the main theory until the Curro cautionary."Treherne said that if anything could be read into ADvTECH's published cautionary announcement about an "unsolicited offer", it might be disdain. "They would be obliged to consider it, but the feeling we got from the announcement was that the offer was not well received."However, McLachlan said there were a lot of players who would find a private-education group with spare capacity quite attractive, especially at ADvTECH's valuations. "A coincidence is all it might be."Either way, ADvTECH's share price initially rose 7% after the cautionary notice was published.Assuming that Curro is the suitor, would the competition authorities have any role to play in such a transaction? McLachlan said probably not."In the private-schooling market in South Africa, my estimate is that ADvTECH has 3% of the market, rounded up, and Curro has roughly the same," he said."The merged entity would have a bit shy of 10% of the entire schooling market in South Africa, so why would the Competition Commission block that?"peacockb@sundaytimes.co.za..