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Karan Khemka, Parthenon Group

Co-head of management consultancy firm Parthenon‘s education practice, Karan Khemka gives insight into private equity investment in international education– an industry he says is only beginning to bloom.

The PIE: What’s been your latest project?

KK: I co-oversee the education practice with two other partners so I’m rarely involved directly with any one engagement. Because I’m based in Singapore I’ll do a bit more in South East Asia or Australia. I have a weak spot for Latin America. It’s a very global practice- just to give you an idea, last year we provided transaction support to the eight largest education deals that happened on the planet worth about $2.6 billion of investment capital. The largest deal was in Brazil, an $830 million deal where Pearson bought an English language teaching company.

Last year we provided transaction support to the eight largest education deals that happened on the planet worth about $2.6 billion of investment capital

The PIE: In general what does Parthenon do for investors?

KK: Mostly for private equity or corporate investors, we provide commercial diligence support. They look at an asset such as a school chain or university or English language school or tutoring company or education technology company. And they’ll want us to look at the company and use our analysis and data and put together a transparent analysis to show whether or not the management’s growth plan is attainable.

The PIE: What do you look at in your analysis?

KK: It depends on what kind of asset it is. Let’s take a private school- the most important thing to understand there is the local demand. A lot of people open schools on very superficial numbers, things like Brazil has these many kids and there are more coming or India has more school-aged kids than the rest of Asia combined or whatever. We come back and say that doesn’t help you at all. With schools you have to go ultra-local and focus on distance, in a very granular way you have to adjust for price point and curriculum. A lot of people don’t go through the effort of doing that but enrolments are largely predictable if you do the analysis right.

The PIE: And how is your approach different for someone who is looking to establish a private higher education institution or a language school?

KK: For universities what matters less is the catchment area as people tend to travel for a four-year university. For universities what matters much more is its ability to put its graduates into good jobs.

For English language teaching people obsess about the efficacy of it. But the reality is nobody knows why some adults can learn a new language and why some cannot but you can still build a great business around providing students with a great experience- they make friends, they feel good about themselves just for the fact that they tried.

Nobody knows why some adults can learn a new language and why some cannot but you can still build a great business around providing students with a great experience

The PIE: How does Parthenon make money?

KK: We’re a traditional management consultancy. It’s fees for time. There are rare circumstances where we will have a success-fee based compensation model– those are cases where the client makes us responsible for results but empowers us to make changes in their company.

The PIE: How do you measure success?

KK: Typically the project is timed so that the advice comes before an enrolment cycle so you can see if the number of enrolments are up for example.  In that sense it’s an industry where you have a fair amount of accountability for what you do because it’s a steady industry- everyone has to go to school. Depending on the enrolment cycles you should be able to see outcomes within a year.

The PIE: How did you get into the sector?

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