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Karan Khemka, Parthenon Group

KK: I wish that the story was I always dreamt of being a management consultant in the education sector but quite frankly when I joined Parthenon I didn’t even know they had an education practice. When you start out in management consulting you think the adrenaline lies in the billion dollar M&A deals with giant automotive companies, but then I did a couple of projects in education and because I was based in London I started to become the go-to guy for non-US education projects. I slowly began to understand it.

Education is the stuff of growth- personal growth, social growth, national growth

There are thousands of management consultants out there working in bottled water or brake parts or whatever. The world economy absolutely needs all those things but education is the stuff of growth- personal growth, social growth, national growth. It is much more transformative than having access to electricity or good roads. But there is a chronic undersupply of education in most of the developing world. It’s great fun being in the sector because we help build big education companies and we feel that in its own small way that is helping create change in the world.

The PIE: There’s a healthy debate in the industry around for-profit education. What’s your argument?

KK: Coming from India I know how phenomenal education can be in a person’s life but in the beginning I was sceptical of companies or universities making money on education. And then what got me to be passionately on the for-profit side was the realisation that everyone makes money in education. The electricity company makes a profit, the facility maintenance company, the publishers who provide books, the people who sell school uniforms, the company who built the school building, the teachers, I hope, make a profit. The real question is: is the institution accountable to the student? In the end the successful investors and operators in education are the ones that produce results for their students and everybody is making money. The president of Harvard lives really well.

Everybody who is providing good outcomes has a place in the sector

The PIE: As private equity begins to flow into the sector, what role will smaller operators have?

KK: We are in the beginning, this isn’t an industry that has played out. The ten biggest university companies in the world together would have less than a 1% market share of global market. Everybody who is providing good outcomes has a place in the sector. It’s notoriously difficult to scale up because you can’t have one school in one area with 20,000 students. So I don’t think there is an end-state where five education companies enrol even 10% of the kids in the world. But I do think that there is an opportunity for many very small companies to triple in size.

There was a time when you were a small English language school or university who would buy you? That era is gone. Now you have private equity funds who are dying to put money in, you have large school and university companies that can roll you up. Just make a quality product and sell it.

The PIE: What do investors look for in schools?

KK: They want to see if a school has a predictable pattern of growth. What they don’t want is enrolments up one year and down the next. And they want to see that the school has been run with longevity in mind, that it retains its students and does good by them.

The PIE: What trends do you see in the international education sector?

Investors want to see that the school has been run with longevity in mind, that it retains its students and does good by them

KK: We have to separate out developed countries and emerging markets- because they’re totally different stories. Western Europe and North America are wrestling with education systems that are bloated and just expensive. In the US a typical liberal arts college or private university has reached a state where the cost is one hundred dollars per hour per student.

In the emerging world, there are pockets of exception, but in most of it there’s just not enough education.  2011 was the first year that total investments in emerging markets exceeded total investments in developed countries. That means on balance, risk adjusted, emerging markets are expected to be the engine of growth for the world. To live up to that hype, they’ve got to crank out skilled people.

Maybe in emerging markets we can develop a new system of education that can bypass this pathway of a hundred bucks per kid per hour. I hope so. But we aren’t there yet. Right now, more is good.

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