As an investment space, international education has two highly promising and converging trends in its favour. Private education is growing worldwide (it was said to account for 30% of all enrolments in 2009), and numbers studying abroad are expected to rise from 3.3million to 8.2million by 2025 according to UNESCO.
Not surprisingly, private education operators with international intakes are becoming increasingly attractive options for private equity firms and corporates seeking judicious investments or economies of scale.
Companies offering higher education – either in affiliation with public universities or granting degrees themselves (such as BPP) – and other types of education, such as further/vocational (Sprott-Shaw Community College in Canada, Carrick Education Group in Australia), high school, language and pathway (Cambridge Education Group) are all appearing on the radars of eagle-eyed investors.
Consolidation is becoming commonplace, particularly in the global language teaching business where there are many high quality independent operators. Previously in The PIE News, we listed seven major acquisitions in 2011 alone, including travel giant TUI buying into the language school business in the UK and one major player, Sprachcaffe, swallowing up the ailing North American language school chain GEOS.
The scale of deals is also beginning to astound. A recent Times Higher Education article on the UK’s private HE sector noted that in 2009, BPP – income listed as UK£49 million – was bought by US for-profit giant Apollo Group for £368 million via Apollo Global, its joint venture with the Carlyle Group, a private equity firm.
“Investments can go down as well as up, but right now the education space is one of the most attractive for investors,” says Chris Eden, Senior Vice President International Development of Wall Street Institute, which was bought by Pearson for $92 million in 2010.
Rod Jones, CEO of Navitas, agrees, having seen his company’s share price rise fourfold since IPO in 2004. “Obviously we believe that education is an investment area with significant opportunity,” he says, citing the growth of English as a world language, quality of education in established markets and improving wealth in developing countries as drivers.
What are investors looking for?
Jason Katz, Director of Kings Park Capital in the UK, says his private equity fund is backed by senior investors from across the global travel and leisure sector. His interest is in the language school sphere, more closely allied with his leisure/travel industry experience.
“The educational travel segment appears to be fragmented with a high degree of family ownership”
“We target businesses that combine resilience with attractive growth prospects,” says Katz. “In the travel sector, specialist travel businesses are most favoured as they provide a niche rather than a mass market offering and as such have higher barriers to entry and typically generate higher margins. We believe the international education sector exhibits similar positive fundamentals.”
He agrees that the high degree of fragmentation in the language school sector (particularly in the UK) means a perfect opportunity for investors. “The educational travel segment appears to be fragmented with a high degree of family ownership. This makes it attractive for a private equity investor looking to back a capable management team in a “buy and build” strategy,” he says.
One such family business, UK-based LSBF, has seen powerful growth since its launch in 2003. The firm, which offers degrees and professional qualifications in business and finance, as well as running a language teaching school, has opened campuses in London, Birmingham, Manchester, Toronto and Singapore. In the last two years it has enjoyed more than 50% year-on-year revenue growth.
Madina Dushimova is Director of Strategy at LSBF, with a background in investment banking. She tells The PIE News that given LSBF has further international expansion in its sights, it is considering working with an investment partner in the future. [more>>]
“International education is considered to be ‘economic cycle neutral’,” she explains. “Very simply, this means that when markets go down, education is seen as a good investment for the future. When markets go up, people have more money and continue to choose to invest in education. It really can be a safe haven for investors, providing companies are delivering on their targets.”
Sector challenges
Such endorsements show the confidence in the sector, but there are still risks to consider. Immigration rulings and currency fluctuations have slowed enrolment in Australia in the last few years, knocking 15% off sector revenue in 2011 (a haircut of AUS$2.7 billion). And recent visa curbs in the UK have impacted on non-EU business for private language teaching operators, although EU business continues to flourish.
Accreditation costs can be another challenge. According to Sue Blundell, head of English Australia, “Many of the Australian government policy changes in the compliance space over the last couple of years have resulted in increasing costs to providers – this has had an impact on really cutting into margins. Combine this with declining numbers of students and therefore revenue and you have a very challenging business environment.”
Similarly, the costs of quality inspections for private language schools in the UK have more than tripled since the government changed its rules on its endorsed accreditation bodies.
While such hurdles injure individual markets, they will not dent demand. International education is undoubtedly growing, even if market share between countries continues to tussle and flex. Says Jones: “Education institutions can be subject to external forces out of their control… Generally speaking though there is strong demand for international education which cannot be met by public providers and students will work hard to find the destination which suits their needs.”
“LSBF has always considered Asia as a region of key importance for international growth prospects”
This is good news, but also means a more competitive sector – one in which companies yolked to certain territories may have to work harder to survive. Increasing expansion, consolidation or strategic acquisition to ensure a global footprint is inevitable.
The OECD’s Education at a Glance 2011 report backs this up, highlighting the drastic reshaping of the international education landscape between 2000 and 2009 when a host of “new” study destinations such as Canada, Spain, Japan and Russia emerged. As Jones notes, if one country loses market share “then inevitably another country will pick it up.”
International education in flux?
The real game changer could be that the source of most demand – the developing world – raises its standards and begins to cater to a far greater proportion of its own market, diverting business from leading providers such as the US and UK. In the last few years a trend has emerged of Asian students seeking education within Asia, due to the rising costs of tuition in the West and increase of branch campuses.
Says Dushimova: “[LSBF has] always considered Asia as a region of key importance for international growth prospects. We opened a Singapore campus in June 2011, [and] we have very ambitious plans to grow that campus, expand our product offering, as well as expanding our business into China, India, potentially other countries in the region.”
Writing in the Assignment Report this May, Richard Taylor, an educational investment expert, noted the huge expansion of Indian education companies, several of which are likely to become significant players in the international market. Educomp, for example, is Pearson’s junior partner in providing vocational training in India but in future “could well become their biggest rival, or even perhaps their most important acquisition target” said Taylor.
As the market evolves, the companies that spread their bets globally look to have the most secure futures, while smaller, localised outfits will be more likely to suffer when challenges arise. That said, if governments recognise the opportunities that lie ahead and make policies accordingly, there’s no reason why the whole sector will not see good financial health for quite some time.
Key acquisitions in international education:
- In 2007, CIBT Education Group Inc paid CAN$12 million for Sprott-Shaw Community College, the oldest and largest private career college in British Columbia with campuses across Canada and Asia. It is one of five subsidiary brands owned or co-owned by CIBT run across 18 countries.
- In 2009 BPP was bought by US for-profit giant Apollo Group for £368 million via Apollo Global, its joint venture with the Carlyle Group. BPP managed to double applicant numbers for full-time degrees in 2011 as overall UK applications fell 8.7%.
- Last September, German-based Sprachcaffe Languages Plus increased its worldwide network of language centres to 31 by buying the GEOS North America school.
- In March 2011, Study Group International made its debut in the Canadian market by acquiring PGIC’s EFL centres in Toronto and Victoria for its Embassy CES brand. Study Group, which operates 41 campuses worldwide, is no stranger to acquisition. It was sold to Australian private equity company Champ and Petersen Investments in 2006, then to Providence Equity Partners LLC for AU$660 million in 2010.
- In July 2011, student travel business TUI Education – a division of German travel giant TUI Travel – bought English Language Centre (ELC) York. The move complements TUI’s growing portfolio of language schools which includes the EAC chain, Hampstead School of English and Manchester Academy of English
- Maltese-owned EC English Language Centres bought three LSC centres in Canada last year gaining entry to Canada’s large ELT market. EC now has 15 schools on three continents.
- Pearson, perhaps international education’s biggest player, entered the English language training market in China in 2008, acquiring Learning Education Center and Dellenglish whose centres number more than 27. It then purchased Wall Street English’s 39 centres in China in 2009 for $145million, before buying parent company Wall Street Institute for $92 million in 2010.
