(Deal Pipeline) Advent International Corp.-backed Brazilian private education company Kroton Educacional SA is taking over peer Anhanguera Educacional Participações SA, which is backed by Pátria Investimentos Ltda., in a deal valued at about 5 billion reais ($2.5 billion), the companies announced Monday.

The combination of Kroton and Anhanguera would create the largest education company in Brazil by far, with a market cap of almost R$13 billion. Kroton is already the largest education company in the country with a market cap of R$7.3 billion. Anhanguera comes in at second place with a market cap of R$5.4 billion. Combined, the companies would have about R$3 billion in revenue, based on revenue posted in 2012.

In 2012, Anhanguera posted Ebitda of R$301 million on revenue of R$1.6 billion, up from Ebitda of R$162.34 million on revenue of R$1.2 billion in 2011. Kroton in 2012 posted Ebitda of R$329 million on revenue of R$1.4 billion, up from Ebitda of R$82.17 million on revenue of R$734.52 million in 2011.

Brazil’s private education sector is benefitting from expenditures in education, a direct result of Brazil’s growing middle class. This is driving private equity’s interest in the big sector players. The country’s private education market expenditure had grown to an estimated R$58 billion in 2011 from only R$12 billion in 2002, according to the Data Popular Institute, a local research organization.

As part of the all-stock transaction, Kroton will exchange 1.36 common shares for one Anhanguera share, it said in a regulatory filing. As a result, Kroton shareholders will have a 57.48% stake in the combined company while Anhanguera’s shareholders will have 42.52%.

To finance the transaction, Kroton, headed by CEO Rodrigo Galindo, said it will issue almost 198.8 million new shares.

On the day of the announcement, Kroton’s shares were up 8.1% at R$27.19. Anhanguera’s were up 7.5% at R$36.72.

The combined company will continue to be publicly traded, according to the companies, though there was no announcement about a new name or ticker symbol.

New York-based private equity firm Advent acquired a 50% stake in Kroton parent Pitágoras Administração e Participação SA for R$280 million in June 2009, which gave it a 28% stake in Kroton. Advent still has a 3.7% stake in Kroton.

Pátria Investimentos invested in Anhanguera in 2005 and took it public two years later. Pátria holds a 10.27% stake in the company.

On April 4, Anhanguera said three Pátria partners — Alexandre Saigh, Luiz Otávio Reis de Magalhães and Olimpio Matarazzo Neto — were stepping down from the company’s board effective April 30. The remaining Pátria representative, Ricardo Leonel Scavazza, will be on the combined company’s board.

The transaction will likely dilute the private equity firms’ stakes in Kroton and Anhanguera, but the parties were not immediately available to comment on the deal.

With Advent on board, Kroton has been aggressively expanding through acquisitions. In its latest deal, announced in April 2012, Kroton subsidiary Editora e Distribuidora Educacional SA acquired Uniao Educacional Candido Rondon, the holding company of Centro Universitario Candido Rondon, for R$22 million.

In December 2011, the same subsidiary acquired distance learning institution Universidade de Ensino Presencial e a Distancia for R$1.3 billion.

Anhanguera has also been on the M&A trail as a buyer. In January, it acquired Instituto Excelência Ltda., the parent company of higher learning institution Juspodium for, R$18 million.

In September 2011, Anhanguera acquired Universidade Bandeirante de São Paulo for R$510 million.