About $300 million would have been invested in thirty education related transactions since 2005 but the lion's share has been snapped up by e-learning enterprises.
RELIABLE ESTIMATES suggest that spending on private education in India, which has been growing at an annual clip of about 14 per cent, could touch the $80 billion mark by 2012. Of late, private equity (PE) funds have been focusing on this space with significant interest. Among the education focused funds is Kaizen.
The founders of this fund believe that education is a counter-cyclical business and are hoping to raise anywhere between $100 to 150 million. About $300 million would have been invested in thirty education related transactions since 2005 but the lion's share has been snapped up by e-learning enterprises. Only two of the thirty completed deals have benefited the traditional schooling (K-12 as it is called) sector. Other sectors within education that are attracting investors are tutoring, test preparation and vocational training.
Challenge for investors The continuing challenge for investors when it comes to schools and colleges that give out a government recognised certificate is the mandatory "not for profit" government diktat.
Till the regulatory environment relaxes, traditional educational institutions would find it tough to attract PE investors unless they offer non-Indian certifications like the International Baccalaureate (IB) or International General Certificate of Secondary Education (IGCSE). Helix Investments have funded Mumbai-based Mahesh Tutorials that runs one of the largest school and college tutorial chains while Gaja Capital have been backing Career Launcher that spans multiple verticals of MBA & engineering entrance coaching.
In the largest deal in this segment, Matrix Partners have pumped in close to $20 million to acquire about 16 per cent in Delhi based FITJEE which is the place to go for IIT aspirants.
In the process, we are witnessing the rampaging growth of non-curricular institutes that offer a far better quality of inputs to job aspirants than their primary colleges do which is ironic, to say the least. This phenomenon also widens the disconnect between generic educators who have only been able to prime their students for exams and not necessarily for careers and professional trainers on the other side of the divide, who have a far higher impact on the employability of students through their "jump start" and market aligned programmes. Former AT Kearney management consultant, Sunil Hinduja, who has recently returned to India after more than fifteen years in the US to dive into the employment enhancement business, is trying another tack of reaching out to principals of engineering and business colleges who struggle to place their students. Given the limited industry interaction of Tier 2 & 3 colleges, their graduates usually don't come up to scratch at interviews. This is the gap that Hinduja is seeking to address and fill. The challenge for him is to embed his offering within the curriculum of his target colleges. His is a non capital intensive model unlike the traditional coaching institutes, which is yet to appear on the radar of investors.
Brick&mortar vs knowledge PE funds have to figure out if bricks and mortar represent a more crucial asset in the education business than knowledge. If they choose to run with the former, it could well turn into a real estate rather than an education play for them. If they prefer the bricks and mortar model, education entrepreneurs would scramble around for premises in the top cities leading to an upward spiral in realty prices. This would defeat the entire purpose of pragmatic education.
The author is a veteran corporate analyst and can be reached at chiranjit.bangalore@ gmail.com