ETTECHX – 05 – 06 – 07 December 2024 – Hyderabad – Telengana

Expert View K -12 Education

Private equity in schools comes of age

Liberalisation of private schools is finally happening and giving the much needed fillip to the schooling ecosystem in India

What the economic liberalisation of 1990s did to the Indian economy, the influx of private equity is doing the same to the schooling system. For as long as one can remember, private schools were mired in the shackles of ‘not-for-profit’ syndrome and profiteering was considered taboo. Not anymore. There is a new found confidence as acquisitions and mergers that are known to sectors such as pharma, retail, and hotels to name a few are now happening in private schools in India.

Expansion, take overs, mergers, funding, and leasing out seem to be the new buzz words in the education firmament. In a significant development, the last few years have seen huge investments ranging from Rs 100 + crore to over Rs 1,000 crore in schools. In 2019, KKR acquired a stake in Eurokids International for a whopping Rs 1,475 crore from Gaja Capital. More recently, in last September Kedaara Capital bought a stake in Orchids International Schools for close to Rs 1,500 crore.

With a growing middle class and a stable economy, India is growing at a steady pace and the K-12 segment which has enrolled 260 million students is a huge market. The winds of change started in the late 90s and early 2000s. Dr B Rout an Economics teacher who has taught IGCSE and IB curricula and founder of Brout Scholars International Coaching Institute (BSICI) says, “International Schools started to mushroom in the late 90s. A number of NRIs returned to India and were looking out for schools that provided International General Certificate of Secondary Education (IGCSE) and International Baccalaureate (IB) curriculum. It was also the time when the economy opened up and young parents were willing to spend for quality education.” He further adds, “Those schools that were set up in the early 2000s have now expanded with more branches and are eager to spread their wings, thus we see mergers and acquisitions.

Another reason for such volatility in the school segment is attributed to the legacy schools that have a long history now want a makeover to suit the modern times. Dr Skand Bali, Principal of Hyderabad Public School says, “I always worked in legacy schools and when the opportunity came about I took up a Greenfield project in the form of Adani International School.” Rajeev Sharma, a consultant says, “Palaces especially in Rajasthan and other states in India are leased out for hotel industry. There are several age-old schools that are more than 100 years old I foresee a similar trend in education as well.”

There has been a paradigm shift in the growth of schools. Right through the 60s, 70s and 80s passionate men and women started schools with one or two classrooms and added a classroom each year. The school would evolve over the years. Today, however, a school is established over several acres of land and buildings are built at one go and the gates are opened for admissions with much fanfare.

There is a major shift in the needs and aspirations of students as well as parents. Holistic learning is the buzz word and rote learning is being replaced with experiential learning. The modern student demands music rooms, state-of-the-art auditoriums, playgrounds, swimming pools, tennis courts and amphitheatre. The style of teaching too has changed. Managements have sponsored teachers to upgrade and many teachers completed international courses in IGCSE and IB and along the way shunned the chalk and talk method with child centric way of teaching.

Another major change that has come about in the management of schools is the setting up of separate divisions. Human resources that was almost non-existent has now come in the front end, says Dr A Senthil Kumaran, Chief Confluencer, The Learners Confluence, Bengaluru. He adds, “There is huge demand for quality teachers and the HR departments would be playing a major role in the coming days and years.” The pay scales too are increasing for teachers. Good teachers are in demand especially after the advent of edtech. Post the pandemic, the edtech sector has been sluggish but with hybrid learning now becoming a norm, experts say the sector will consolidate.

Edtech stood at 7th position in most funded sectors with 0.28 $ Bn in 2023 Indian Startup Funding 2023 2022 2021
Funding Amount Deal Count Funding Amount Deal Count Funding Amount Deal Count
$283 Mn+ 47+ $2.4 Bn 95+ $4.8 Bn+ 172+
Source: Inc42 Note: 2023 funding data is for the period between January 1 and December 25

Predictions for 2024 in edtech sector
With the emphasis on vernacular languages espoused by the National Education Policy (NEP) 2020, vernacular content will witness a surge and there are expectations of increased adoption. In the post Covid-19 era, edtech growth is to see growth from
tier II cities.

Edtechs to reduce fees in a bid to capture the wide market and penetrate into smaller towns. Also, integration of GenAI to empower Edtech platforms in 2024. After a lull in the edtech sector post Covid, the sector looks for consolidation.

The profit debate
Teaching is a noble profession and the ‘not-for-profit’ narrative is nothing but hypocrisy say educationists. Noted author, management guru and public intellectual Gurucharan Das has been a strong votary of autonomy for private schools says that it is time India shed its hypocrisy that forbids a private school from making profit. Profit allows schools to improve quality. “The choice to shift assets held under the society should be given to transition to section 8 companies. Today’s parents need quality education which can happen when the management is left with freedom to provide so,” says Sunderrajan Iyengar, board member of Anish Education Society that runs Anish College of Commerce in Hyderabad.
Many schools had to shut operations during the Covid-19 pandemic owing to losses and non-payment of fees by parents. Sundararajan Iyengar argues, “If schools were recognised under micro, small and medium enterprises and credit was made available to ailing schools during the Covid-19 period, many schools would have been saved.”
Infusion of private equity has several benefits as schools can upgrade on several fronts including infrastructure, pedagogical practices and better teacher training. Economic liberalisation has shown that competition results in wider choice and rationale in prices in this case fees. The objection that schools would raise fees indiscriminately is countered by the proponents of ‘schools for profit’ by stating that competition will finally result in reasonable fee. Amit Kumar, Director, member, advisory board of National Independence Schools Alliance (NISA) says, “Schools run by philanthropic organisations can continue and schools that want to move to profit status should be given a choice. Both can function.”
Francis Joseph, an eminent educationist cautions that all the stake holders which includes the parents and teachers should be informed about the move towards private equity and financial transactions and ensure that values of the respective institution is preserved. He also suggests for the creation of a regulatory body to guide private schools on compliances created by the Dubai Government.

Rakesh Gupta, Founder and Managing Partner and Payal Jain, partner, LoEstro Advisors have done $800 Mn in transactions in the education space that includes K-12 and higher education and advised over 100+ clients share their thoughts on the vibrant education space.

Mergers and acquisitions in the K 12 space is growing. What do you attribute this change to?
The K-12 education sector continues to be an attractive investment opportunity for international investors as well as domestic operators. The K-12 sector with 250Mn+ school going students is a resilient sector with long-term revenue visibility.
Increasingly, state and central governments, education boards have also started to take more a pragmatic approach towards regulations in the sector – paving the way for more private capital to flow in.
Tell us about the major mergers and acquisitions that were facilitated by LoEstro.

At Loestro, we have facilitated over a billion dollars worth of transactions in the education sector, including some of the largest K-12 cross-border M&A transactions. Few of the publicly announced transactions include:
Sale of a pre-school chain called Oi Pre-school to First Cry
Two large upskilling transactions in ed-tech which involved acquisition of INeuron by Physicswallah and GUVI by HCL Tech parent company Vama Sundari.

Multiple K-12 partnerships including Glendale, Hyderabad, Vikassa group of Schools, Madurai & Silver Oaks, Bengaluru with Singapore-headquarter Global Schools Foundation; The Cambridge International School (TCIS), Sarjapur with KKR backed Lighthouse Learning among others.

How do you see the next 10 years unfold especially in the K12 segment?
Despite very attractive macros, the number of scaled private K-12 businesses in India is dismally low. K-12 investment is typically a long gestation investment. Schools take minimum 5-7 years to reach scale and to start generating returns which requires access to patient capital that institutions can provide. Private growth capital will require clear exit possibilities before they can make this commitment.

Over the next decade, as the market in India matures, we anticipate an increase in number and size of private K-12 school transactions. International investors will continue to double down on India. For instance, Singapore-based and Indian -origin Global Schools Foundations has announced plans to invest over USD 550 Million in India’s schools education sector by 2026.

Additionally, some of the scaled players will explore providing exit to their investors either sale to larger private equity secondaries funds or through IPO’s and public listings.

Driven by these possibilities, we expect further investment in the sector which is great for the sector and will result in better quality offerings for parents and students.

Who are the major international players evincing interest in India?
India is flush with international schools. As Indian parents are becoming more aspirational, the demand for quality international schools is also rising rapidly.
There are two distinct modus operandi in play here. One is the entry of large private equity backed international K-12 platforms who are primarily expanding into India through acquisition of elite home-grown international schools. This category includes the likes of Nord Anglia Education, Cognita, International Schools Partnership (ISP) and Global Schools Foundation (GSF).
Many groups have seen success while establishing their presence in India, and gained confidence to further acquire more assets in the country. ISP, has been doubling down on their India business, acquiring Manthan International School this year after recently partnering with Sancta Maria International School. Global Schools Foundation also entered into a strategic partnership with Witty International, shortly after acquiring Hyderabad-based Glendale Education, Bangalore-based Silver Oaks, and Madurai-based Vikaasa Group of Schools.

In addition to this, we see UK’s legacy brands wanting a piece of the Indian K-12 pie. Driven by macro-economic trends, UK legacy brands are opening up satellite campuses in India. These brands have typically partnered with a local real estate group or an existing education group to launch greenfield operations in India.
2023 marked the year where prestigious brands like Harrow School and Wellington College International start their first academic year in India. And while they are not the first UK brands to enter India (Repton partnered with VR Group in 2016 to start United World Academy), the commencement of their programs in India marks several trends for Indian Education in general.

Do you foresee big players entering into smaller cities?
Most of the international interest in education has been limited to metro cities in India, primarily because of the steep fees they charge. IB for instance is the most expensive board in India with fees ranging from INR 3-10 lakhs. UK legacy brands, on the other hand start their fees upwards of INR 15 lakhs. Harrow’s Bengaluru campus for instance has fees totally to INR 22 lakhs.
Some of the larger domestic players are entering into Tier II markets. K-12 Techno, which runs the Orchid Group of Schools and had recently raised capital from private equity firm Kedaara Capital as well as Lighthouse Learning (earlier, Eurokids) backed by PE fund KKR are selectively looking beyond the metro cities.
How liberalisation of schools will help the sector is being talked about in every forum. School leaders say that doing away with the number of regulations and ease of doing business (Running a school is a business and recognise it as one argue several associations) can do wonders. According to a recent report, one requires 125 documents that need to go through at least 155 steps within the Directorate of Education to establish a school in Delhi and it is no different in other parts of the country.

According to a white paper published by FICCI Arise and authored by Vardan Kabra and Anupam Gupta, private schooling is nearly US $100 billion in size with a 15 per cent compound annual growth rate (CAGR). The white paper was published in 2021 but since then a lot of changes have taken place in the education space and as predicted by the paper that ‘huge capital inflows will surely happen once its liberalised’ is coming true. As the education sector evolves, the corporatisation of schools will gather momentum.

What does the private school managements want?
Education vouchers for individual students instead of RTE. If direct benefit transfer is facilitated by the Government, the student and the private schools will benefit. The former will get quality education and the latter will be able to accommodate students.
Sweden and Chile adopted the voucher system with success. Parents and students will have a choice to go to private schools and get quality education.

Sweden allows for-profit schools and has shown very good results.
Schools should decide on the fees and allow the market to decide. Rationalisation of fees will automatically happen as market forces will take care Full autonomy to schools in raising capital

Private Equity firms in education business

Gaja Capital
Gaja Capital is a private equity firm that invests in mid-market companies in emerging sectors such as education, financial services, consumer and healthcare.

The India-focused firm has invested or led the funding round in various educational companies, some of which include Ahmedabad and Bengaluru-based Edtech Company Educational Initiatives, SportzVillage, EuroKids, and CL Educate.

KKR & Co. Inc.
New York-headquartered KKR, it announced acquisition of about 90% stake in EuroKids chain of schools from existing private equity investors Gaja Capital and Swiss fund Partners Group.

Kaizen Private Equity
Kaizen Private Equity is India’s first private equity fund. Kaizen PE has invested or led the funding round in various edtech startups in India and across Asia. Besides many, the firm has recently led a Series A round funding of $35 million in Mumbai-based edtech startup Toppr.

Baring Private Equity Asia
Baring Private Equity Asia (BPEA) is one of the largest independent private equity firms in Asia. BPEA has invested in various educational ventures. In February this year, the firm-owned Nord Anglia acquired five Oakbridge K-12 schools, and in March 2018, it invested in Wall Street English, world’s leading English language training network for adults, along with CITIC Capital, to name a few.

The Carlyle Group
The Carlyle Group is an American multinational private equity, alternative asset management and financial service corporation. Founded in 1987 in Washington, DC, it is one of the world’s largest and most successful investment firms with $212 billion of assets under management.

CVC Capital Partners
CVC Capital Partners, established in 1981 is a leading British private equity firm. CVC’s private equity platform manages over $53 billion of assets and comprises four strategies – Europe/Americas, Asia, Strategic Opportunities, and Growth Partners. in June, 2019, a consortium led by it has agreed to acquire a 30% stake in the world’s largest private education provider by revenue Dubai-based GEMS Education.

SAIF Partners
SAIF Partners is a leading private equity firm that provides growth capital to companies in Asia. It invests in helping Asia’s exceptional companies grow from concept to IPO. The firm has offices in Hong Kong, China, and India and currently manages over $4 billion in capital.