EducationInvestor Global June edition

EducationInvestor Global June 2020 vol 12 • no 4

essential reading for education companies worldwide

Unicorn spotting A field guide to finding the next billion-dollar ed tech

Bouncing back

Staying put

Too big to fail?

When will education deal volumes recover?

International education in China will be closer to home

Cash-strapped British universities cannot bank on bailouts

infrastructure

• ICT • outsourcing • academies • schools • colleges • nurseries • universities • policy

Announcing our new date!

We have been continuously monitoring the everchanging circumstances surrounding Covid-19, and are focused on keeping our NMT community safe during this time. The pandemic has had an effect on everyone’s lives and has brought many challenges and achievements to the childcare sector, and so it is incredibly important that the hard work and dedication of the Scottish nursery sector is celebrated.

With this in mind, we have taken the decision to postpone the 7th Scottish Nursery Awards, originally scheduled for the 4th September 2020, to Friday 19th March 2021 at the Hilton Glasgow.

MAIN SPONSOR

We are also reopening the entry process for the awards, with a new entry deadline of Friday 4th December 2020, to allow additional time for you to get your entries in.

We look forward to celebrating the achievements of the sector in March!

Exciting news – the Scottish NMT Nursery Awards are returning and we are thrilled to be supporting this fantastic event as Main Sponsor!

Morton Michel is known as the UK’s leading childcare insurance specialist. For over 25 years we have provided specialist cover for nurseries and are proud to protect the assets and interests of almost 4,000 nurseries nationwide.

Our nursery insurance package includes a range of additional benefits such as FREE Early Years training from award-winning flick learning, access to our FREE Early Years Advisory Service provided by Croner-i, a FREE counselling helpline and lots of discounts for you, your staff and your business as part of our exclusive ChildCare Club!

We are really excited to be celebrating excellence in the Scottish early years sector this September and look forward to meeting many of you soon!

Sue Lee Managing Director

CATEGORIES: ■ NURSERY TRAINING & DEVELOPMENT AWARD We are looking to acknowledge and reward exceptional commitment to training and developing staff. The Award could go to an outstanding business, nursery or individual who is making an exceptional contribution to enhancing training and staff development within your nursery/group or the childcare sector.

■ INDIVIDUAL NURSERY AWARD Awarded to a nursery that is a single owned and run site (i.e. not part of a multiple group of owned nurseries) which has, in the view of the judges, created the very best environment to promote the highest levels of childcare, staff morale and business performance.

■ NURSERY INDOOR LEARNING ENVIRONMENT AWARD This Award will be won by the nursery which has created an environment that most inspires and excites children. The entry will show how the nursery actively involves children in their learning, as well as celebrating their achievements.

■ NURSERY TEAM AWARD This Award will go to the nursery team that has developed and maintained an excellent standard of childcare showing exceptional group values and a commitment to working together for the common good.

CATEGORY SPONSORS

For sponsorship opportunities please contact Caroline Bowern; caroline.bowern@investorpublishing.co.uk

The 7th Scottish NMT Nursery Awards will be held on Friday 19th March 2021 at the Hilton Glasgow, Scotland

To enter, complete the online Entry Form at:

www.nmt-magazine.co.uk/scottishawards or email: events@investorpublishing.co.uk

#ScottishNMTAwards

@NurseryManagementToday

■ FOREST OR BEACH SCHOOL / KINDERGARTEN AWARD

@NMTMagazine

■ NURSERY NURSE / CHILDCARE WORKER AWARD

This Award will be made to the forest or beach school / kindergarten which can demonstrate their focus on developing personal, social and emotional life skills through learner led, nature-based learning. The entry will show how children are inspired creatively with activities and experiences with an outdoor approach.

This Award recognises the outstanding childcare provided by a Nursery Nurse/Childcare Practitioner. The childcare will include warmth, equality, responsibility, safety, fairness and being supportive in all relationships involving the children, parents and organisation.

■ NURSERY ROOM LEADER AWARD

■ NURSERY MANAGER AWARD The nursery sector depends on the very best managers for its current and future success. This Award will be won by the manager who has shown outstanding caring and business skills and leadership in developing a thriving, high quality nursery which delivers a superb environment for children, staff and parents.

■ NURSERY AREA MANAGER / OPERATIONS MANAGER AWARD

This Award will go a Nursery Room Leader who shows the leadership skills required to provide a safe and stimulating environment for children, excellent ability to support and develop other team members, an ability to observe, assess and track children’s learning and development, someone who has a high degree of integrity and empathy when dealing with children and is an excellent verbal and written communicator.

■ NURSERY GROUP AWARD

This Award will be made to a senior manager who has demonstrated exceptional vision leadership across the settings they are responsible for, enhancing the reputation and success of the Nursery / Group as a whole.

■ NURSERY OUTDOOR LEARNING ENVIRONMENT AWARD

This Award is open to nursery groups with two or more Scottish settings and is designed to recognise a forward thinking group which has shown outstanding success in delivering high quality childcare, well-trained and motivated staff, inspirational values, focus across the group and financial success.

■ NURSERY PERSONALITY OF YEAR AWARD

This Award will be made to the nursery which has, in the view of the judges, created an outdoor ‘living classroom’ that inspires and excites children. Activities that promote physical well-being, creativity and first-hand learning experiences will be sought.

We’re looking for the person whose great personality and energy has made a real difference in their own setting in ways which are truly inspiring and memorable. This person will actively promote excellent care for their children, peace of mind for parents and a happy working environment.

CLOSING DATE FOR ENTRIES: FRIDAY 4TH DECEMBER 2020 JUDGING DAY WILL BE HELD DURING FEBRUARY 2021

CONTENTS

Africa

news Exclusives

6-7

K12

8-10

Higher education

11-13

Vocational & skills training Ed tech & educational services

Conquering a continent 36 To reach unicorn status in Africa’s private education market, investors must understand fully its challenges and create innovative continent-wide solutions, writes Henry Warren, chair of African ed tech Watobe

14 15-17

Unicorn spotting

18

Europe global Unicorn spotting 18 As learning – for now – is confined largely within computer screens, the coronavirus crisis will give rise to a wave of new ed tech businesses. Investors are striving to spot the next unicorn before its valuation balloons, but how does one tell it apart from a donkey? Simone Rensch finds out On the rebound 24 When will deal volumes recover?

The question is not if, but when, writes Josh O’Neill on the back of an EducationInvestor Global webinar 10 minutes with...

28 MarcoPolo Learning Educational media provider MarcoPolo Learning developed a product that reaches some 500 million households across the world. Patrick Dumas, an investor and the company’s head of business development, sets out its strategy as it looks to cap off a $15 million funding round amid a crisis that catalysed an unprecedented shift to home learning

University challenge – 30 the international edition The UK higher education sector is bracing for a multibillion-pound loss come September, when a sharp fall in international student enrolments caused by Covid-19 will wreak havoc on universities’ finances. With a spate of potential mergers looming, Josh O’Neill wonders if it is time for the sector to think small – and agile Building for the future 34 Emma Cleugh, partner at global property consultancy Knight Frank, offers advice to schools and universities across the UK on how to unlock value in educational buildings amid the coronavirus crisis, and why operators and investors should start planning now for the post-pandemic world

Asia Staying put 38 To find the future of international education in China, one doesn’t have to look far, writes Philipp Ortner, managing director of Chengdu-based Elite Education Consulting

finance Deals The month’s latest transactions

University challenge

42

34

EducationInvestor Global Subscribe today to read our news and exclusives on educationinvestor.co.uk ipevents.net/subscriptions/educationinvestor-global-subscriptions

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EducationInvestor Global • June 2020

UP FRONT MANAGING DIRECTOR Vernon Baxter – +44 (0) 20 7104 2001 vernon.baxter@investorpublishing.co.uk EDITOR Josh O’Neill – +44 (0) 20 7451 7069 josh.o’neill@investorpublishing.co.uk DEPUTY EDITOR Simone Rensch – +44 (0) 20 7451 7061 simone.rensch@investorpublishing.co.uk REPORTER AND SUBEDITOR Charles Wheeldon – +44 (0) 20 3762 2556 charles.wheeldon@investorpublishing.co.uk HEAD OF SALES Michael Dee – +44 (0) 20 7104 2006 michael.dee@investorpublishing.co.uk SALES MANAGER Carlo Menezes – +44 (0) 20 7104 2002 carlo.menezes@investorpublishing.co.uk SALES MANAGER Grace Mackintosh – +44 (0) 20 7451 7067 grace.mackintosh@investorpublishing.co.uk DELEGATE SALES & ADVERTISING EXECUTIVE Sohail Iqbal – +44 (0) 33 0052 6190 sohail.iqbal@investorpublishing.co.uk DELEGATE SALES & ADVERTISING EXECUTIVE Shakil Ahmed – +44 (0) 20 7104 2005 shakil.ahmed@investorpublishing.co.uk SENIOR EVENTS MANAGER Nicola Jones – +44 (0) 20 3746 2613 nicola.jones@investorpublishing.co.uk PRODUCTION MANAGER Jeremy Harvey – +44 (0) 20 7451 7053 jeremy.harvey@investorpublishing.co.uk DESIGN & PRODUCTION EXECUTIVE Craig Williams – +44 (0) 20 3762 2254 craig.williams@investorpublishing.co.uk PUBLISHER Harry Hyman FOLLOW US ON TWITTER @EduInvestor

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EducationInvestor Global • June 2020

Green shoots After a tumultuous few months during which investors’ focus on preserving cash put a dampener on deal flow, there are signs of life in the education investment arena

I

don’t know about you, but if feels to me like the market is slowly grinding back into life after a fairly unremarkable period in which the initial shock of Covid-19 suppressed M&A activity. Conversations with deal-makers and investors no longer revolve around whether they will keep their pipelines intact or portfolio companies afloat. Instead, processes that were put on ice are starting to thaw, auction mandates are being handed out, and funds are actively seeking new places to deploy capital. As lockdowns across the world continue to ease, it seems that flickers of normalcy outside the realm of education investment are being received well by those within it.

In the news pages of this edition, we exclusively reveal London-listed Capita’s plans to offload its education software services (ESS) division, for which it could receive as much as £700 million. The business has deep penetration in the UK school market and was described by one source as the “crown jewel” asset of the Capita group. Since we broke news of the sale, which Capita confirmed in an official statement, market participants have speculated that proceeds from it will be used to clear some of the parent company’s £1.8 billion debt load.

“They’re obviously under a lot of pressure from lenders,” said one source – a sign of the Covid-19 times and protracted pressure on cash flows at Capita, whose value since January has more than halved to just £750 million. Expect more carve-outs of cash-generative assets by both public and private education companies as they seek liquidity to help them weather the financial effects of the pandemic.

While the coronavirus crisis has dampened significantly the volume of transactions linked to M&A, it has catalysed fundraising at fledgling education firms, demand for whose products and services, in many instances, has increased.

Indeed, in India, ed tech was the only sector apart from healthcare to witness a rise, yearon-year, in the number of deals over the past six months, according to Venture Intelligence.

Indian education start-ups collectively raised $795 million through 25 transactions in the first half of this year, Venture found, compared with

$108 million in 19 deals during the same period of 2019. For further evidence of how Covid-19 has propelled growth in the ed tech sector, see the deals section.

However, as more money is rained onto ed techs, the harder it is to pick winners. The segment is becoming more saturated by the day, as cash injections from venture capitalists spawn new offerings, ratcheting up competition levels and, therefore, customer acquisition costs.

Meanwhile, opportunities can be laden with risk (see page 15). Many ’innovative’ businesses face questions over their long-term financial viability, regardless of the importance of the problems that their products purportedly solve.

Which is why this month’s cover story (see page 18) offers a field guide to unicorn spotting, to help you detect ed tech moonshots and avoid donkeys. It explores the nuances of management teams, identifies common strategic pitfalls, and outlines metrics against which to gauge potential in the absence of financial indicators, since most start-ups don’t make any money. Read on to find nuggets of advice from the investors behind some of the most prominent and valuable ed techs, including VIPKid and Coursera.

As Covid-19 continues to confine learning to within computer screens, traditional education providers are weighing how much to invest in digital infrastructure as they consider whether online delivery fits into their long-term strategies. Many businesses that operated out of brick-and-mortar centres before the pandemic now think e-learning – in some form – is here to stay. As one school operator recently put it: “Most restaurants that pivoted to takeaway when lockdowns began will continue to offer carry-out even when diners can return.” If this line of thought is reflected widely throughout the global education sector and sustained, then ed techs – and their investors – have reason to rejoice. n

Josh O’Neill, Editor, EducationInvestor Global

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Exclusives

FTSE 250-listed Capita eyes £500m sale of education software solutions division Capita will look to sell its education software solutions (ESS) unit for at least £500 million, EducationInvestor Global exclusively revealed.

This publication learnt that the FTSE 250 firm was in advanced discussions with bankers from Goldman Sachs about selling Capita ESS, whose platform SIMS is reportedly used by 80% of UK schools.

Capita’s board convened virtually and greenlighted a sale of the unit, which is expected to launch as soon as July and close in the third quarter.

Capita confirmed the development in a statement after this publication broke the story, which resulted in the company’s share price climbing by more than 15%.

For Capita ESS, which generates EBITDA of around £50 million a year, auctioneers will target a priceto-earnings multiple of between 10 and 14, one source said – indicating that the business could fetch between £500 million and £700 million.

The company, which caters to 21,000 schools and 160 universities worldwide, will draw attention from trade buyers – such as Civica, PowerSchool and IRIS – as well as private equity funds, sources said.

One source described Capita ESS as the “crown jewel” of the parent company and said it is “one of the most cash-generative assets” that Capita owns.

Strategic consultancy McKinsey & Co has won a sell-side due diligence mandate, according to one source – though this could not be corroborated.

Capita, Goldman Sachs and McKinsey did not respond to requests for comment.

Capita SIMS, which stands for school information management system, is a back-end service developed in the early 1980s

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that allows schools to collect and monitor data on student attainment, parental engagement and financial management. It lists more than 50 products on its website.

Demand for school software solutions in the UK has grown in line with the increasing prevalence of multi-academy trusts (MATs), which require centralised systems to keep tabs on as many as several dozen schools’ finances and operations.

Meanwhile, the influence of local authorities wilted as the market consolidated, leading councils across the country to pare back, offload or wind down their education services divisions as school groups increasingly turned to private providers offering onestop solutions.

Capita SIMS was the first-ever management information system provider geared at schools.

Described by one source as having a “monopoly” on the UK school market, it is currently used by more than 21,000 schools in 49 countries, according to its website.

However, one source suggested that Capita SIMS is losing

approximately 2% market share a year to providers such as Arbor, Bromcom, ScholarPack and Pupil Asset, which was acquired earlier this month by private equitybacked Juniper Education.

Several sources criticised Capita SIMS over its “legacy issues”, which developed as the decadesold company built out its suite of products and offerings, creating layers of “clunky” technology in the process.

Two sources said that Capita SIMS, which requires schools to store data on physical servers, has lost market share to cloud-based rivals, which created joined-up solutions that compile information more efficiently on centralised systems.

“SIMS’ data is held on individual servers within schools, meaning it can’t be analysed easily by MATs, whereas cloud-based solutions are designed to overcome this,” an insider said.

Capita SIMS unveiled a cloudbased solution for primary schools, SIMS Primary, in 2018, but its market penetration is understood to be limited in comparison to its flagship product.

Changing providers can be a cumbersome and time-consuming process, because staff require re-training and data needs to be migrated – which is why, according to sources, many schools renew their contracts with Capita SIMS rather than switching.

Though Capita SIMS has won several industry awards, its origin is marred by controversy.

In 1982, the firm’s founder Philip Neal wrote a programme allowing teachers to produce computerised pupil reports that was later developed using funds belonging to Bedfordshire council, which ultimately transferred the assets to a private holding company.

Former Labour MP Margaret Moran described this as using council resources to effectively set up a private business.

Rival provider Bromcom has on three occasions referred Capita SIMS to the now-defunct Office of Fair Trading.

In a complaint filed in 2009, Bromcom alleged that Capita SIMS had overcharged UK schools by £75 million over a 10-year period – but the OFT declined to investigate.

EducationInvestor Global • June 2020

NEWS

Exclusives

Singaporean wealth fund invests €350m in Inspired Education, valuing school group at more than €3bn

GIC, a Singaporean sovereign wealth fund, has invested ¤350 million in Inspired Education, cashing out private equity group Oakley Capital in a deal that valued the premium private school operator at ¤3.05 billion, EducationInvestor Global exclusively revealed.

The fund, which manages investments on behalf of the Singapore government, took a 15% stake in Inspired Education in April – less than a year after it came up against Warburg Pincus in a bidding process that saw the buyout house acquire 16% of the firm at a ¤2.2 billion valuation.

GIC’s investment saw Oakley Capital, one of the first private equity funds to buy into Inspired

Education, divest its entire holding in the school group, which caters to more than 50,000 students worldwide.

Oakley Capital, which once owned a 35% stake in Inspired Education but reduced this gradually as new investors came on board, confirmed the divestment in an announcement on its website, but did not name the new investor.

Sources said that, before the Covid-19 pandemic struck, Inspired Education had forecast earnings before interest, tax, depreciation and amortisation (EBITDA) this year of ¤150 million. This suggests that GIC paid a price-to-earnings multiple of around 20 for its stake.

The deal has not been revised in light of the coronavirus crisis, this publication understands.

It is understood that GIC first began looking at Inspired Education in 2017, when the company had sought fresh growth capital. TA Associates, a private equity house, fended off competition from GIC and other suitors, and eventually took an undisclosed stake in the company, which it still owns.

Because GIC had already undertaken due diligence on Inspired Education during previous fundraising processes, the fund began a “limited” analysis at the end of January and was ready to agree the transaction several weeks later, a source said.

Shareholders in Inspired Education, which operates more than 60 schools across nearly two dozen countries, also include its founder and chief executive, Nadim Nsouli, and South Africa’s Oppenheimer family.

The organisation traces its roots to South Africa, where Reddam House, an esteemed independent schools group that was the first to be acquired by Inspired Education in 2013, is situated.

It is understood that capital provided by GIC, which manages more than $100 billion of assets in over 40 countries, will help fund Inspired Education’s global acquisition strategy, as well as greenfield developments.

Lifetime Training’s private equity parent scraps auction and will keep business for up to three years Silverfleet Capital will retain ownership of Lifetime Training for up to three years after abandoning a sale of the apprenticeship provider whose revenues have been decimated by the pandemic, EducationInvestor Global exclusively revealed.

Three sources familiar with Silverfleet Capital’s strategy told this publication that the London-based buyout house has called off the auction of Lifetime Training, which was being overseen by advisors from Houlihan Lokey, an investment bank.

One source said that Silverfleet Capital “definitely plans to hold

EducationInvestor Global • June 2020

onto it for another three years” to “restore profitability” that has been eroded by Covid-19, which forced the firm to close its centres indefinitely and furlough some 1,400 staff. Two other sources confirmed the three-year horizon, while another suggested that 12 to 18 months was “more realistic”.

Most of Lifetime Training’s clients are in retail and hospitality – industries arguably among the hardest hit by a crisis that hammered high street footfall while forcing bars and restaurants to cease trading indefinitely.

“There could hardly be two worse sectors to specialise in [at present],” said one source. The UK government has signalled that bars and restaurants could begin to reopen in July but is yet to commit to a date.

The development came just eight weeks after this publication reported that a chorus of private equity investors, which included KKR and CapVest, had tabled preliminary bids for Lifetime Training, which had been marketed on EBITDA of £20 million.

It is an example of how private equity funds may have to extend

holding periods that typically last around five years as a result of Covid-19 to eke out enough profits from affected businesses to satisfy their managers and investors.

Silverfleet Capital and Houlihan Lokey declined to comment.

Silverfleet Capital acquired Lifetime Training from rival mid-market private equity group Sovereign Capital in 2016 for between £115 million and £120 million. At the time, Lifetime Training recorded pre-tax earnings of around £11 million.

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Singapore: Maple Leaf to buy Canadian International School for £386m as it bolsters overseas presence Maple Leaf Educational Systems will acquire the Canadian International School (CIS) in Singapore for S$680 million (£386 million) as the China-based school operator expands its footprint outside the mainland.

Following the acquisition, the Hong Kong-listed organisation will take control of one of Singapore’s largest for-profit international schools, which has some 3,500 students enrolled across its two campuses.

According to sources, Maple Leaf’s offer bettered bids tabled by China’s Primavera Capital Group, a private equity firm which owns independent school chain Spring Education Group in the US, and EQT, another buyout house.

In a statement, Maple Leaf, whose schools deliver a Canadian curriculum, said it will bring “a top-tier brand” into its portfolio of schools, most of which are located in China with a handful in Canada, Australia and Malaysia.

“The acquisition of CIS is an excellent fit with our strategy to grow internationally and gives MLES a base in the attractive international school sector in Singapore,” said Sherman Jen, chairman of Maple Leaf.

“Following the acquisition, our overseas schools will generate approximately 30% of MLES’s total revenue.”

Shares in Maple Leaf, which caters to more than 43,500 students, rose by as much as 10.4% on 22 June – the biggest increase since late April.

Subject to approval from shareholders and regulators, Maple Leaf will acquire 90% of CIS in the third quarter of this year, and the remaining 10% after the close of the academic year ending in July 2022.

It is the latest sign of Chinabased private school operators

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Singapore

building out international operations despite the worst pandemic in generations.

China’s Bright Scholar, for instance, last year spent nearly £200 million buying independent schools in the UK and elsewhere.

Some 17 UK private schools are owned by China-based groups.

Fitch Ratings, a US-based credit rating agency, said in May that private schools in China “with strong financial flexibility may seek overseas expansion as more opportunities arise” amid widespread distress caused by Covid-19.

Founded in 1990 in Singapore, CIS is a premium all-through international school teaching the International Baccalaureate curriculum with a “highly acclaimed” English-Chinese programme taught by qualified native speakers.

It is currently owned by Southern Capital Group and HPEF Capital Partners, two private equity firms.

According to a Maple Leaf investor presentation obtained by this publication, CIS has a 20% share of Singapore’s premium private school market, which is home to competitors such as Stamford American International School, GEMS World Academy, the Australian International School and Nexus International School.

A source told this publication that the school makes around S$50 million a year, and that auctioneers had been targeting a price representing 15-17-times 2020 EBITDA since launching an auction in the fourth quarter of last year.

The acquisition of CIS is sizeable, considering Maple Leaf as an organisation is currently valued at HK$6.95 billion (£710 million).

One source, who noted that one of CIS’s campuses is due to be returned to Singapore’s government next year, described the deal as “high risk when it’s that much money for just one

school” and highlighted “the risk that students will leave when one of the campuses closes”.

The agreed price “is a lot of money versus their [Maple Leaf’s] current size and their own EBITDA multiple is 10, so this would be dilutive”, the source added in reference to the S$680 million price tag, which is around 14-times CIS’s annual earnings.

“Maple Leaf owns a school campus in the East of Singapore, so they were the only bidder that could replace the campus that the Singapore government is taking back.”

According to its investor presentation, Maple Leaf will finance the acquisition using a “bank loan” and “internal resources”.

Over the next five years, the group is targeting 110,000 enrolments worldwide, it said.

Last year, EducationInvestor Global spoke to the vice-chairman of Maple Leaf’s board, Howard Balloch, about the group’s international ambitions.

EducationInvestor Global • June 2020

NEWS

K12

Chinese investors’ appetite for British schools deepens as 17 now owned by mainland groups China-based investors and organisations have bought 17 UK independent schools since 2014, according to a new report, all of which were “struggling financially” before being acquired.

The majority of schools purchased by mainland buyers over the past six years have boarding facilities, the report by consultancy Venture Education found, and nearly a quarter (24%) have opened, or plan to launch, offshoots in China.

Three schools – Wisbech Grammar, Heathfield Knoll and Abbots Bromley – were acquired this year.

Last year, four private schools were sold to Chinese organisations. Kingsley School Bideford in Devon was bought by China First Capital Group, which backs KSI Education, the group that bought Heathfield Knoll, while Bright Scholar, a listed China-based school operator, snapped up Bosworth Independent College, St Michael’s School and CATS Colleges. The purchases by Bright Scholar were collectively worth nearly £200 million.

The report highlights a trend in which cash-strapped schools have fallen into the hands of Chinese investors and school operators, which typically see opportunities amid distress to acquire institutions at cut-rate prices and fill them with larger numbers of foreign students, who pay higher tuition fees. Many either already have operations in China or plan to launch sister schools to facilitate lucrative student exchange programmes.

EducationInvestor Global • June 2020

According to Venture Education, “all of the purchased independent schools were struggling financially before the acquisition, with lack of enrolments as the main cause”.

The coronavirus crisis, which has already forced nine British independent schools to close down, could accelerate this trend, as many schools struggle to provide refunds and discounts and cope with tumbling enrolments without detriment to their balance sheets.

Last month, Fitch Ratings said that private school operators in China in strong financial positions “may seek overseas expansion as more opportunities arise”.

Julian Fisher, senior partner at Venture Education, described the appetite among Chinese investors for UK school assets as “high”, noting that, for many, investing in British schools is “a safe bet”.

He said: “They not only have the capital value of the property and land but a general belief that they can make schools profitable again through an injection of funds and Chinese students.

“The additional form of value can come through opening campuses in China, or potentially in belt and road countries.

“If the UK school is managed well, with a quality team, this school can then provide curriculum, support teacher training and recruitment, and provide a UK base for engagement and exchange.

“As always, though, investors’ exuberance can easily outweigh the reality of turning around a school and managing intercultural teams with very different approaches and beliefs in education.”

Gordonstoun to launch Canadian campus under plans for global franchise network Gordonstoun, the esteemed Scottish private school and alma mater of Prince Philip, is to open an offshoot in Canada as part of a network of franchise schools.

It comes four months after the school announced that it would establish a campus in China, under the guidance of BBD Education, a strategic consultancy based in the United Arab Emirates, which is also advising on its Canadian venture.

The new school, like Gordonstoun’s Scotland mothership, will be situated between the sea and the hills, spread over some 250 acres within Nova Scotia’s Annapolis County. It is set to open in August 2021.

Gordonstoun’s links with Nova Scotia, one of Canada’s most densely populated provinces, date back hundreds of years, when the main building at the school, Gordonstoun House, was owned

by Sir Robert Gordon, the first

Baronet of Nova Scotia. He was granted 16,000 acres on the coast of Nova Scotia.

A consortium led by Canadian businessman Edward Farren will build the campus and it will be opened in cooperation with local authorities and government.

In its pedagogy, the new school will implement the renowned Kurt Hahn philosophy, an ethos that “stretches, challenges, nurtures and develops every child”, according to Gordonstoun. It will be the world’s only school where students help operate local fire and coastguard services, it said in a statement.

Lisa Kerr, principal of Gordonstoun, said: “This agreement will pave the way for more children to benefit from an education based on Gordonstoun’s unique ethos, which combines high academic achievement with exhilarating outdoor experiences and a strong commitment to service to the community.”

Gordonstoun

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Revealed: Nine UK private schools that have closed down since the pandemic began Nine independent schools in England are either set to close or explore fire sales in the wake of the Covid-19 pandemic, with around 30 in total said to be under threat of closure.

Ashdown House in East Sussex; the Minster School in York; King’s College Saint Michaels in Tenbury Wells; Moreton Hall Prep School in Suffolk; Park School in Somerset; St Peter’s Independent School in Northampton; Roedean Moira House in Sussex; Frederick Hugh House in Chelsea; and HawleyHurst in Hampshire have all reported that they are unable to continue trading.

EducationInvestor Global has reported on the individual closures of Ashdown House, St Peter’s, Moreton Hall and Roedean Moira House.

The Minster School, a preparatory school that traces its roots to the seventh century, announced that it would shut down due to a funding shortfall caused by Covid-19. Its operator, the Chapter of York Minster, said the school faced a “catastrophic loss of income” and consequently anticipates a £5 million gap in its budget.

King’s College Saint Michaels, an international boarding school that Inspired Education has owned since it took control of the King’s Group

last year, “will close its doors for good on 30 June 2020”, the school’s HR manager Le Roux Dupper said in a post on LinkedIn. “All staff are being made redundant,” he added. It was unclear from the post, however, whether this particular closure was linked directly to Covid-19.

The Park School, which opened in 1851 and taught some 250 pupils, crashed into administration in May after Grant Thornton, its administrator, failed to secure a

buyer for the school, according to SomersetLive. In 2018, the school relocated to a location just outside Yeovil but was unable to offload its old site, which reportedly exacerbated financial pains.

Frederick Hugh House, a special needs school in Kensington founded

by Amanda Barclay, the daughter of Sir Frederick Barclay, one of two billionaire brothers who own The Telegraph newspaper, has closed permanently due to “financial

hardship”. In a letter sent to staff, Anne Marie Carrie, chair of the school’s board of trustees, wrote that “there is no other viable option available to the charitable trust other than initiate the immediate permanent closure of the school and seek voluntary insolvency”, according to The Guardian. The school charged £50,000 a year in fees.

HawleyHurst, a private school owned by the founder of The Eden Project, Tim Smit, who acquired it from private equity-backed Minerva Education Group in 2017, collapsed into administration in April, but is understood to have since been put up for sale by Knight Frank. It is yet to secure a buyer, however.

Neil Roskilly, chief executive of the Independent Schools Association, told this publication that “there are around 30 schools which are distressed and could close”. He added, however, that it is difficult for his organisation to understand the “status” of each school because “it could be that they are in formal administration, or could have announced closure technically for redundancy purposes, but be in negotiations with other investors”.

For this reason, he expects that “many would reopen under new ownership”, rather than close permanently.

UAE: American private schools announce tie-up as pressure mounts on finances Two American schools in Sharjah will merge to reduce costs, in the latest sign of financial pressure on private school operators in the United Arab Emirates stemming from Covid-19.

Bukhatir Education Advancement and Management International (BEAM), a school operator based in the UAE, has announced that The American School of Creative Science in AI Layyah will merge with the

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American School of Creative Science on Maliha Road on 30 August, according to The National.

The tie-up will be valid for one year to reduce operational costs.

It comes as private school operators across the UAE, whose K12 market is dominated by independent providers, continue to grapple with falling revenues in the absence of financial support from government.

Last month, a webinar hosted by this publication found that the UAE’s private education market could contract by 12% as a result of the Covid-19 pandemic, which forced schools and other educational centres to close indefinitely in March.

The American School of Creative Science will close on 2 July, according to reports, at the end of the summer term, throughout

which learning has been completed at home.

BEAM has reportedly consulted Sharjah’s education watchdog on the merger, and pointed out that the move will not negatively affect students because both schools deliver the same curriculum.

Since 2016, 10 private schools have merged or closed in Dubai, according to the city’s education regulator.

EducationInvestor Global • June 2020

NEWS

Higher education

US universities to lose ‘at least’ $3bn due to Covid-19, says association The US higher education sector “will lose at least” $3 billion as a result of the coronavirus crisis, a national association has warned, with losses driven mainly by tumbling international enrolments across the country.

The Covid-19 pandemic will cost US universities dearly, according to NAFSA: Association of International Educators, which surveyed leaders across the country’s $520 billion higher education sector in April.

It found that universities had already collectively spent around $638 million on “financial support” for international students, scholars, faculty and staff who remained on campuses when courses were moved online earlier this year.

Education-abroad programmes, whereby students enrolled at US universities spend a portion of their courses at sister institutions overseas, will not resume until it is deemed safe to travel, and universities “are

not certain when they will be able to offer education-abroad programmes again”, said NAFSA. The group found that, of 346 respondents to its survey, most (53%) had cancelled study-abroad programmes due to Covid-19, and would “not be able to recoup” funds.

Meanwhile, nearly a third (32%) of US universities said that, throughout the crisis, they had financially supported foreign

students by bearing costs related to airfare, food, housing refunds, rent, scholarships and tuition refunds.

In projecting a decline in international student enrolments in the autumn, most (35.5%) US universities said that they expected to lose between $100,000 and $500,000.

Nearly a fifth (18.4%) thought that they would lose between $500,000 and $1 million, while 6.6% expected to lose more than $3 million.

UK: Specialist university buys closed-down private school to expand socially distanced campus

Global University Systems expands Canadian footprint with purchase of private music college

A specialist university in Dorset, England has acquired a local private school that was set to close down after the summer term.

Bournemouth’s AECC University College, which specialises in health sciences, has bought the site on which St Thomas Garnet’s School is located, opposite its main campus in Boscombe.

St Thomas Garnet’s School announced in May that it would close permanently at the end of the academic year, which prompted AECC to spark discussions with the school’s board around a potential acquisition.

AECC will use the school site as a second campus, in the short term providing additional socially distanced teaching capacity for new and returning students in September.

“When we heard about the news of the closure, we began a conversation with the school’s trustees.

“For us, this was a once in a generation opportunity and it gives us the chance to expand our site to

Private higher education provider Global University Systems (GUS) has acquired Trebas Institute, an independent music and entertainment college in Canada, amid a crisis that poses an existential threat to many universities’ finances.

The transaction, the value of which was not disclosed, will expand GUS’s roster of Canadian universities, which includes University Canada West, Toronto School of Management and The Language Gallery Canada.

According to its website, Trebas Institute, which has campuses in Montreal and Toronto, offers “high-end” educational programmes in the entertainment industry and claims music “artists themselves” are among its graduates.

The private university was founded in 1979 and was registered under Canada’s Private Career Colleges Act in 2005.

“Our institutions provide a variety of study paths and qualifications and we are always

EducationInvestor Global • June 2020

a second campus within 30 yards of the first.

“With the current coronavirus situation, this acquisition will give us extra capacity to spread out across the two sites, providing greater social distancing when we start our new academic year in September – creating the safest possible scenario for our students and staff.”

The deal is an example of cross-pollination within the UK’s education sector, constituents of which – including private schools and universities – are facing perhaps the most significant financial pressures in decades, forcing many to close down.

Earlier this month, we reported that nine private schools had closed down since the pandemic began – though this number may have since increased.

In 2018 – the year for which Charity Commission data is most recently available – St Thomas Garnet’s School’s charity parent had funds totalling £811,756 – up from £728,578 a year prior.

looking to expand to new sectors and locations,” said Cyndi McLeod, GUS Canada chief executive. “With Trebas Institute, not only will we expand our education offer by adding creative disciplines, but we will also establish a presence in Montreal for the first time.”

Founded in 2013, GUS owns more than 20 for-profit universities across the world, including The University of Law and Arden University in the UK. Most of the group’s institutions specialise in various fields, such as law, business, management and creative industries.

The deal closed during a turbulent period in Canada’s higher education sector, which, like that of other countries, was rocked by a pandemic that has caused domestic and international students to reconsider plans amid concerns that in-person instruction and flights may still be banned in September.

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NEWS

Higher education

UK: Universities could lose £760m if degrees are delivered online – survey UK universities face a potential loss of £760 million after a survey found that one in five students will not enrol in the next academic year if instruction is delivered online.

A survey of undergraduate applicants, published by the University and College Union and London Economics, found that more than 20% – equal to 120,000 students – would consider delaying studies if universities could not offer a full campus experience due to Covid-19.

It estimated that the “likelihood of attendance” in Autumn this year, if universities “will not be operating as normal”, was around 72% – a result which, if it materialises, would see the higher education lose £760 million in tuition fees and teaching grants.

If universities were operating as normal, the likelihood of attendance was found to be 86.7% – evidencing that the chance of deferral among UK-domiciled students was approximately 17% higher as a result of the pandemic.

UK universities typically receive around 530,000 applications a year, of which just 6% of students – around 30,000 – decide to defer.

The survey was published just days after Cambridge University – in response to demands by the higher education regulator for clarity around whether classes will remain online in September – announced that all lectures would be hosted digitally until next summer.

The findings will deal a fresh blow to universities across the UK, which had already anticipated a multibillion-pound loss due to a sharp fall in the number of international students. Some universities, including one of Manchester’s, have announced that extensive job cuts and salary sacrifices may have to be made in order to cope with vast income losses.

Gavan Conlon of London Economics said: “The analysis illustrates that there continues to be a huge amount of uncertainty amongst prospective students in respect of the potential higher education offer in September.

“If the current deferral rates as a result of the pandemic are borne out, then the financial consequences facing universities will be even more severe than those identified recently.

“There are a lot of jobs at risk, both in universities and in the wider local and regional economies where universities are based.”

US: Financial effects of pandemic will be worse on for-profit universities, says ratings agency Private US universities could experience “more meaningful financial effects” of a decline in enrolments in autumn stemming from the coronavirus crisis than their public counterparts, a ratings agency has said.

US-based Fitch Ratings said that it anticipates a decline in annual enrolments of between 5% and 20% at many US higher education institutions.

But, given a higher reliance on tuition and student fee revenues, private for-profit colleges will be adversely affected, said Fitch Ratings, whose analysis assumed

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that most residential campuses will re-open in autumn.

According to Fitch, 82% of private universities’ total revenue, on average, comes from tuition and student fees, compared with 38% at public institutions, which rely more heavily on grants and subsidies.

“Enrolment pressures, particularly related to declines of international students and incoming freshmen, will not affect institutions equally,” Fitch said in a statement. “Tuition constraints will exacerbate the financial effects of enrolment declines.

“The economic downturn

could weaken expected family contributions, increase financial aid needs and undermine enrolment decisions.”

Fitch said that private colleges in “competitive regions with challenging demographics”, such as the Northeast, and/or already waning enrolments will be most affected. Institutions with a wider geographic draw, high selectivity and revenue diversity are “less vulnerable”, it added.

Universities are expected to provide – or are already offering – discounts on tuition fees in an effort to attract and retain students.

The median discount rate across private colleges rated by Fitch is around 35%, it said, noting that the range varies “widely”, from less than 10% to more than 60%. The national average discount rate of about 40% is higher for first-year undergraduate students, “and is viewed by Fitch as unsustainable”.

This follows annual tuition fee increases of 2% at private colleges over the past three years, said Fitch, adding that revenue growth over this period was “due almost entirely to tuition increases”, as enrolments were “largely flat” across its portfolio of rated institutions.

EducationInvestor Global • June 2020

NEWS

Higher education

Australia: Seven universities at ‘high financial risk’ as La Trobe seeks lifeline from banks Seven universities in Australia are at “high financial risk” as a result of a cash crunch that could stem from a loss of revenue linked to international students, new analysis shows.

While most Australian universities have adequate cash and investment reserves to weather the financial impact of Covid-19, the “longer term prospects are grim”, research by academics at the University of Melbourne has found.

Ian Marshman and Frank Larkins, honorary fellows of the Melbourne Centre for the Study of Higher Education, identified seven institutions at which a downturn in revenue from foreign students risks exceeding available reserves. These are: Monash University, RMIT, University of Technology Sydney, La Trobe, Central Queensland and Southern Cross University, and the University of Canberra.

The findings were published as La Trobe, situated in Melbourne, confirmed it had sparked talks with

three banks around a lifeline and began discussions with staff about voluntary redundancies.

Two of the universities most at risk – Southern Cross and Canberra – have “very low” levels of available cash and investment reserves, according to the research, the authors of which said “this adds to their financial vulnerability”.

Out of 38 universities analysed, 13 faced “medium” financial risk, the study said, while the remaining 18 – comprising nearly half of the sector – faced “management risks that are of lower severity”.

“The adverse consequences of the Covid-19 pandemic on the university sector are both immediate and can be anticipated to endure for many years,” wrote Marshman and Larkins.

“Some strategic policy choices that will need to be made to varying degrees by universities to mitigate predicted losses are discussed.

“These choices are likely to result in changes to sector-wide operational practices more profound

than anything experienced since the establishment of the unified national system in the early 1990s.”

The stark revelations follow numerous warnings from Australian universities about the adverse financial effects of a fall in the number of international students who make up a multibillion-dollar sector because of the pandemic.

Deakin University called for voluntary redundancies after it forecasted a A$110 million drop in revenue for this year; the University of New South Wales has projected a A$600 million cut to income, Melbourne A$500 million, and Sydney University A$470 million.

Between 2009 and 2018, Australian universities enjoyed an unprecedented boom in international student enrolments, as revenue from foreign students grew by 260% from A$3.4 billion to A$8.8 billion.

But Australia’s market-based higher education system, in which universities rely heavily on

tuition fees and less so on state handouts, has seen institutions become “increasingly reliant” on international student fee income to fund teaching, research and capital infrastructure programmes, Marshman and Larkins said.

Their modelling suggests that, as a result of the Covid-19 pandemic, Australia’s universities will lose international student fee revenue amounting to A$18 billion by 2024.

Even under what the pair calls an “optimistic scenario”, international student enrolments will not return to pre-pandemic levels until the same year.

Regional universities, given their relatively smaller cohorts of international students, are expected to be “less exposed financially” to a drop in enrolments, Marshman and Larkins said.

However, few institutions have sufficient operating margins or reserves to withstand a sustained reduction in international fee revenue, the researchers said.

Big Four group invests in German digital business school PwC has acquired a near 50% stake in a German “business school for the digital age”, whose aim is to better prepare senior executives for technology-enabled careers.

The Big Four professional services firm did not disclose the value of its investment in Berlin-based Digital Business University of Applied Sciences (DBUAS), but said the capital injection would be use to accelerate growth.

In the coming months, PwC will embed DBUAS’s portfolio into its internal curriculum, it said, allowing its roughly 12,000 employees in Germany – who generate more than ¤2 billion in revenues – to enhance their digital skillsets.

“For a successful digital transformation, we need new skills

EducationInvestor Global • June 2020

and different ways of thinking and working. Combining our expertise with DBU’s practical, project-based learning and agile methods, enables us to train the digital pioneers of tomorrow,” said Ulrich Störk, a leader at PwC in Germany.

Research by PwC published earlier this year identified that a significant proportion of executives consider digital upskilling as a key pre-requisite for success in an age in which working life is inherently interlinked with technology.

Founded in 2018, DBUAS provides business leaders with executive training courses, and professionals and students with bachelor’s and master’s programmes, as well as short online courses – all of which are centred on digital skills.

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NEWS

Vocational & skills training

London-listed group buys Wall Street English Vietnam London-listed Myanmar Strategic Holdings is to acquire Wall Street English Vietnam from Verlinvest, despite the financial havoc that Covid-19 pandemic has wreaked on English-language tuition (ELT) providers globally.

The firm announced that it had exchanged contracts to take control of WSE Vietnam from Verlinvest, a private investment firm which owned the business through A-StarEducation, a platform for which it provided seed capital.

The deal will see Verlinvest reinvest $4 million into WSE Vietnam’s holding company, which also owns

Wall Street English Myanmar, after becoming convinced “of the longterm potential of Myanmar Strategic Holdings”, said Raphael Thiolon, executive director of Verlinvest.

WSE Vietnam, which in the 12 months ending 30 April 2020 generated nearly $14 million in revenue but lost $1.4 million, is a franchisee of Wall Street English, which is owned by Baring Private Equity Asia and CITIC. The organisation announced last month that it would wind down its China operations because of the fallout from Covid-19, which earlier this year caused centre-based education

providers to close for often indefinite periods of time.

Myanmar Strategic Holdings said that its purchase of WSE Vietnam will see the firm’s centres continue to operate under 10-year franchise agreements made with Wall Street English, the terms of which are “similar” to those in place for WSE Myanmar. As of 30 April 2020, WSE Vietnam, which focuses on the “premium” market segment, enrolled more than 6,000 students at seven centres in Ho Chi Minh and Binh Dhuong.

Myanmar Strategic Holdings said that the acquisition will involve a

“nominal consideration” payable in cash, plus the assumption of certain liabilities, including “a commitment to service the existing WSE Vietnam students”.

The deal is expected to complete

by July, subject to regulatory approvals.

Alain Thibault, chief operating officer of Myanmar Strategic Holdings and chief executive of WSE Myanmar, described the acquisition as “a tremendous opportunity to generate operational synergies and leverage the competencies we have developed over the years” since investing in WSE Myanmar in 2017.

EF plots China expansion weeks after pandemic prompted rival to shutter mainland operation Education First (EF) is set to have “one of its biggest investment years ever” despite the coronavirus crisis, as the language tuition giant draws up expansion plans for its Chinese operation, one of its executives has said.

Jacob Toren, chief executive of one of the world’s largest educational travel and language training provider’s China

division, said that EF is “confident to open more schools” this year across the country, where it already operates more than 300 centres.

EF, which was founded in 1965 and now has 52,000 employees in 114 countries, is also accelerating the development of its “hybrid” language tuition offering in light of the Covid-19 pandemic, said Toren, which forced it

to close all of its locations and transfer tuition online.

His comments, which were made during an interview with China Global Television Network, came a month after it was revealed that rival organisation Wall Street English would wind down its China unit due to insurmountable operating conditions ushered in by the pandemic.

“The Chinese education market has great potential, both in size, and in quality,” said Toren. “We think it is set to become the largest education market in the world and we will, therefore, of course continue to invest in this region.

“We think this [pandemic] will be a defining moment that will strengthen China and we will see a strong rebound when all cities can return to normal.”

Investment firm targets health and social care sector as it snaps up UK-based training provider London-based investment holding company MBH Corporation has acquired Logistica Training, a training provider serving the health and social care sector, for £5.8 million.

The deal is MBH’s 11th in the education sector and will expand its portfolio, which includes Acacia Training and the Parenta Group.

Logistica Training, which was established in 2012 as a vocational training business, last year recorded earnings before interest and tax of £800,000 against £1.9 million of revenue – meaning a

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price-to-earnings multiple of just over seven will be paid for the firm.

The transaction comes at a difficult time for the UK training and apprenticeship market, which has been hampered by the coronavirus crisis as governmentenforced lockdown measures forced brick-and-mortar training centres to close indefinitely in March. The sale of another business in the sector, Lifetime Training, was cancelled last month after the number of apprenticeship starts dropped off a cliff due to Covid-19.

Training provided by Logistica

Training, however, is “fully funded by the EU”, according to MBH, which added that the firm recently started to deliver online training to workers in sectors unrelated to health and social care.

MBH highlighted synergies between Logistica and other training companies in its portfolio.

“Logistica Training is a strong addition to MBH, supporting synergies in the education vertical with other businesses in the group, and widening our UK reach in regulated qualification delivery in health and social care,” said

Victoria Sylvester, managing director of Acacia Training.

“Logistica Training holds contracts similar to other members of MBH which cover additional regions in the UK and by sharing knowledge, expertise and experience between the companies will support continued group growth.”

MBH said it had launched a ¤50 million bond programme, a portion of which will be used to fund its purchase of Logistica Training.

The firm is reportedly targeting between five and 10 acquisitions this year.

EducationInvestor Global • June 2020

NEWS

Ed tech & educational services

Muddy Waters becomes third short-seller this year to accuse China’s GSX Techedu of systemic ‘fraud’ Muddy Waters has published a damning report on GSX Techedu calling it a “near-total fraud” – the third short-seller this year to accuse the New York-listed Chinese moonshot of systemic fraud.

GSX Techedu was four weeks ago called “the most blatant Chinese stock fraud since 2011”

by Citron Research, after another short-seller, Grizzly Research, said in February that “GSX’s success is actually based on a fraudulent scheme”. VIPKid, one of GSX Techedu’s rivals, in April launched legal proceedings against the organisation related to alleged intellectual property theft.

Muddy Waters, similar to Citron and Grizzly before it, said “we think it’s quite likely that at least 80%” of GSX Techedu’s users are “fake”, adding that it based its findings on “user and attendance data files” downloaded “from more than 200 paid K12 classes covering 54,065 users”.

The short-seller claimed that “a former GSX manager corroborated our analysis, and explained various details of GSX’s extensive bot operation”, which, according to Muddy Waters, has been used to inflate student numbers and give weight to robust financial growth.

EducationInvestor Global • June 2020

“We conclude that GSX is a massive loss-making business”, said Muddy Waters in its report, which included detailed break-downs of methodology and extensive evidence supporting allegations.

“Without users, there is no revenue.

“We also conclude that GSX greatly understates expenses.

“Regardless of how one cuts it, though, GSX is an almost completely empty box.”

On publication of the new report, compiled by one of the world’s most prominent short-sellers, GSX Techedu’s share price fell from $35.43 to $29.71, before recovering to, and closing at, $32.84 on 18 May. In February, the business was trading at $45.

In a statement dated 19 May, GSX Techedu “refuted the false allegations” in Muddy Waters’ report: “The company respects Muddy Waters’ efforts. However, after analysing the report, the company believes that Muddy Waters lacks a basic understanding of GSX’s operations.

“The company’s management regrets to see confusion in the market and will continue to use its best efforts to ensure that investors fully understand all aspects of the business.”

US law firm Wolf Haldenstein Adler Freeman & Herz announced on 15 April that it was investigating “serious and disturbing class action claims” about GSX Techedu on behalf of shareholders in the company.

Listed on the New York Stock Exchange but based in China, GSX Techedu is an online after-school tutoring company that claims to achieve extremely high margins by employing high-quality teachers to instruct classes comprising thousands of students in middletier mainland cities.

In the fourth quarter of last year, GSX Techedu reported a standalone gross profit margin of 79%, and said full-year revenue for 2019 was ¥1.58 billion (£181 million), up 520% from ¥254.6 million the year prior.

The report by Muddy Waters, which said it is “highly confident” that at least 73.2% of the nearly 55,000 GSX Techedu users it analysed “are bots”, will likely carry more weight than previous allegations by less well-known short-sellers. The firm is perhaps best known for its short position on Sino-Forest Corp, a Canadalisted Chinese organisation, at which it uncovered fraud that

later led to criminal charges being tabled against the now-defunct company and its executives.

In its report, Muddy Waters said that GSX Techedu’s chairman, Larry Chen, “strangely tried to dissuade us from looking at GSX last month” in an interview with Chinese media on 8 April, during which he reportedly said: “I think if Muddy Waters analyses our data seriously, there is a high probability that think Muddy Waters will not be so stupid.

The level and IQ of the people in Muddy Waters is quite high.”

GSX Techedu, which earlier this year became the first listed ed tech company to reach a market capitalisation of $10 billion, is currently valued at around $8.5 billion.

Muddy Waters explained that more than half (52.8%) of the unique GSX Techedu users it identified as bots were “precise joiners” – users which joined a class at the “same time, to the second, on the same day of at least two different weeks”. It compared the likelihood of this occurrence to “a weekly flight from city A to city B touching down two or more times at exactly the same second”.

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NEWS

Ed tech & educational services

China Distance Education gets takeover offer days after US announces regulatory crackdown on listed Chinese firms China Distance Education’s management team has offered to buy the organisation, less than a week after US President Donald Trump ordered regulators to crack down on Chinese companies listed in the US that fail to uphold accounting standards.

The company received a preliminary non-binding offer from Zhengdong Zhu, co-founder and chief executive, and his wife, Baohong Yin, co-founder and deputy chair, to buy all outstanding shares for $9.08, in cash, per American depositary share ($2.27 per ordinary share).

Under the take-private deal, the management team and its “affiliated entity” – likely a financial sponsor – would pay $307 million for China Distance Education, whose market capitalisation currently stands at nearly $278 million.

China Distance Education’s board said it had “just received the proposal letter and has not had an opportunity to carefully review and evaluate the proposal or make any decision with respect to the company’s response to the proposal”.

The company’s share price climbed 12% when markets opened on 8 June following the announcement.

The organisation, which is listed in New York but based in China, is one of many in Trump’s sights, as his administration seeks tighter control over mainland-headquartered companies that tap global investors through US stock exchanges.

Less than a week ago, Trump set a 60-day deadline for US financial regulators to recommend ways to clamp down on US-listed Chinese organisations amid concerns that the Chinese government is preventing

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auditors from thoroughly assessing accounts – giving rise to fraud.

“China’s actions to thwart our transparency laws raise significant risks for investors,” said Trump. “The time has come to take firm action in an orderly fashion to put an end to the practice that has tacitly permitted companies with significant Chinese operations to flout protections United States law requires for investors in United States markets.”

It has been said that intensifying scrutiny stemmed from a scandal linked to Luckin Coffee, which vowed to become China’s answer to Starbucks and floated on the Nasdaq exchange in 2019 but earlier this year was found to have falsified £250 million of transactions.

Muddy Waters, the short-seller which first raised alarms over dubious accounting practices at Luckin Coffee, has since gone after GSX Techedu, an online tuition provider listed on the New York Stock Exchange whose operations are based in China. The short-seller – the third this year to accuse GSX Techedu of malpractice – called the company a “blatant fraud” and accused it of overstating profits by 70%. Numerous lawsuits have been filed against GSX Techedu but the firm denies all allegations.

One source suggested that “USlisted Chinese groups will de-list” as regulatory scrutiny is ratcheted up.

The source said: “China doesn’t allow the auditors to provide access to their workings to overseas regulators; China chooses to classify these as state secrets – presumably to avoid the company directors getting sued for the constant frauds. “[The] US is using this as a threat to de-list them all.”

Private equity-owned e-learning provider files for bankruptcy to reduce $2bn debt burden

Skillsoft, a US-based e-learning company owned by private equity firm Charterhouse Capital Partners, has filed for pre-packaged chapter 11 bankruptcy to reduce its debt burden of around $2 billion.

The firm said it had agreed to a restructuring process with the majority of its lenders that would help slash its debt burden to $410 million.

Skillsoft filed for bankruptcy in Delaware, a low-tax US state where it has registered assets and liabilities of between $1 billion and $10 billion.

The firm said that it expects to have liquidity of around $50 million following the restructure, and, in the meantime, no employees will be affected and clients will continue to be serviced.

Skillsoft did not say whether the restructure was related to Covid-19 or the financial effects of the pandemic.

Companies which file for chapter 11 bankruptcy are typically on the verge of going bust but believe that, following a reorganisation of assets, debts and strategy, can once again become profitable.

John Frederick, Skillsoft’s chief administrative officer, said: “Today’s announcement marks an important step forward in significantly strengthening Skillsoft’s capital structure and positioning the company for long-term success.

“While our core business remains strong, with attractive profitability and cash flow characteristics, our debt levels are too high. We need to invest further and that requires our debt levels to come down to free up cash to further enhance our offerings.

“We look forward to benefitting from a stronger balance sheet and enhanced financial flexibility as we continue investing in new products, solutions and content to drive value for our customers and growth in the business.”

EducationInvestor Global • June 2020

NEWS

Ed tech & educational services

15 listed education companies that have grown despite Covid-19

Listed education companies with technology-driven delivery models have seen the greatest increase in value since January, an analysis by this publication has found, demonstrating to an extent the ed tech sector’s resilience to Covid-19.

At the beginning of June, the price of 15 out of 50 global education stocks tracked by this publication had risen since January, when the viral outbreak began to tear across the world.

Companies compiled under EducationInvestor Global’s analysis operate across a range of educational subsectors, including early years, K12, higher education, vocational training, ed tech, publishing and after-school tuition. Analysis of movements in their share prices and thus market capitalisations offers an insight – albeit limited – into how education businesses across the world are coping with the coronavirus crisis through the eyes of public-market investors.

Organisations that generate significant portions of their revenues from delivering technology-enabled education have, generally speaking, fared better throughout the pandemic than traditional providers.

EducationInvestor Global • June 2020

China Online Education Group, which despite its name is listed in New York, soared 120% between 2 January and 2 June, making it the list’s best-performing stock of the past five months. In the first quarter, the company, which orchestrates online classes taught to Chinese students by foreign tutors, said its net revenue grew 52%, as active student numbers were boosted by 26% to 286,600.

Of five Hong Kong-listed businesses that made the cut, Koolearn, a provider of online courses founded by Chinese education giant New Oriental, witnessed the biggest growth as its share price climbed more than 85%.

The group now has more than 8.5 million registered users who can choose from some 1,200 courses.

Koolearn has a gross margin of 54% but is currently loss-making.

Chegg, a US-based ed tech listed in New York that sells digital textbooks and offers online tutoring, saw its share price swell by 62% between January and June. As of May, the firm had 2.9 million subscribers – up 35% on last year. In the first quarter, net revenue also expanded by 35%, Chegg said. Late last year, the group acquired coding school Thinkful

after buying WriteLab, an artificial intelligence-driven company, and StudyBlue, an online studying platform, in the years prior.

In addition to Koolearn, four businesses whose market capitalisations increased despite the most turbulent economic environment in recent memory are listed in Hong Kong, a high-growth market whose education landscape institutional investors are familiar with. These are Huali University Group, Scholar Education Group, China Gingko Education Group and China Kepei Education Group – all of which operate private universities in China.

China Kepei, which focuses on career-oriented qualifications, jumped 75%. The firm, which operates Guangdong Polytechnic College, Zhaoqing Science and Technology Secondary Vocational School, records annual revenue of HK$776 million (£79 million) and net income totalling HK$496 million. China Gingko, which offers courses in disciplines including management, engineering and economics, climbed 63%. Scholar Education Group saw its share price jump by 46%, while Huali University Group gained 29%.

Yet, other private university operators across the world have been hammered by Covid-19, which stymied flows of international students and brought about unforeseen costs as institutions were forced to transition abruptly to online delivery. For instance, listed university operator Laureate, most of whose campuses are in the US and Latin America, saw its share price sink nearly 40% between January and June.

The eight remaining companies are listed either in New York or London. These are 2U, GSX Techedu, K12 Inc, NetEase, Strategic Education, TAL Education Group, Wey Education and Zovio.

The past five months have been kind to GSX Techedu. The New York-listed moonshot, whose business model is like that of rival China Online Education Group, has this year been accused of systemic fraud and financial misreporting not once but three times by short-sellers.

Despite a string of active lawsuits against the company, one of which relates to intellectual property theft and was filed by a rival organisation, GSX Techedu’s share price was 53% higher on 2 June than it was 20 weeks prior.

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GLOBAL: ED TECH

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EducationInvestor Global • June 2020

GLOBAL: ED TECH

Unicorn spotting As learning – for now – is confined largely within computer screens, the coronavirus crisis will give rise to a wave of new ed tech businesses. Investors are striving to spot the next unicorn before its valuation balloons, but how does one tell it apart from a donkey? Simone Rensch finds out

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nicorns – businesses valued at $1 billion or more – are mystical creatures in the ed tech arena. As of January, only 14 existed, according to Holon IQ, a data provider. Investors are fascinated by the prospect of spotting one before its valuation rockets, yet few actually do. And, as the Covid-19 pandemic grinds on and continues to confine learning to virtual environments, the global ed tech sector is poised for further saturation.

So, EducationInvestor Global crafted this field guide to unicorn spotting, amalgamating advice from successful investors and industry experts to help you pick winners and avoid donkeys.

hundreds – if not thousands – of competitors peddling a similar line. So, how can investors separate the good from the bad, the unique from the banal, the original from the imitation when ploughing tens of millions of dollars into loss-making fledgling companies?

“The secret is to find and recognise them before anyone else notices them,” says Michael Staton, partner at Learn Capital, a venture capital fund focusing on education that backed Coursera and VIPKid, two unicorns.

People, not product

Investors agree that one of the most important aspects of an ed tech business is who’s running it. Staton says that The current landscape he looks for founders whose roles are “what they were just The global ed tech industry has spawned numerous unicorns meant to do with their lives”. However, any investment over the past 18 months. In May, virtual decisions ultimately rely, to varying flashcard platform Quizlet reached extents, on intuition, he says. But the unicorn status after raising $30 million more time spent with management teams, the more refined one’s ability to spot in a Series C funding round that valued success becomes: “In theory, once you the business at around $1 billion. At the You want founders spend 10,000 hours meeting teams, you end of last year, language-training app that are going Duolingo became a billion-dollar business might have a better ‘Spidey’ sense. You to be with the following a funding round in which it also might be more attuned to some of those company for at raised $30 million. According to HolonIQ, subtle things that are hard to articulate.” least five years the world’s 14 ed tech unicorns – all of If a business has more than one founder, it is crucial that they have a strong bond which are Chinese, American or Indian – have collectively raised more than $6.6 and shared long-term vision, says Staton. billion over the past decade.

“Half of the times that companies die at China made up more than half (52%) an early stage it’s because the founders of the past decade’s ed tech venture capital funding, while break up,” he says. “You want founders that are going to the US represented 33%, followed by Europe, India and be with the company for at least five years.” the rest of the world, each contributing about 5% of global Adaptability is key, too. The coronavirus crisis has shone funding. HolonIQ expects more than $87 billion to be a light on how quickly even a recession-resilient sector invested in ed tech over the next 10 years – almost triple like education can be uprooted. Successful ed techs require management teams that are versatile and able to pivot the prior decade. While these figures may seem impressive products and offerings to the market’s changing wants and in isolation, ed tech expenditure accounts for less than 3% needs. Charles McIntyre, co-founder and chief executive of of global education spending.

Despite often having millions of users, many ed tech Ibis Capital, which backed public unicorn Meten Edtech X, businesses – even unicorns – fail to turn a profit, as costs explains: “The management capability for us is much more focused around the versatility and ability to pivot when an related to the acquisition of customers often exceed what opportunity is identified.” This trait is particularly important they spend. A common trait among ed techs is that they claim to be “the best” at what they do, despite often having when it comes to early stage investments, he adds.

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EducationInvestor Global • June 2020

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GLOBAL: ED TECH

▶ “Businesses that are very successful are sometimes two or three deviations away from the original business concept or idea because they’ve grown in response to the market,” says McIntyre. He and his firm tend to avoid “people who have identified one pain point in the market and think they have the panacea for that without working out the real commercial proposition and the underlying trends within the ecosystem”.

Janine Manning was one of the first angel investors in Crimson Education, a $260 million ed tech company which specialises in college admissions consulting and also has an online high school. Recalling the investment, she reflects on the robust capabilities of Crimson’s founders, who were just 18 years old at the time. Manning, who is a director of Crimson, says: “First and foremost, I looked at the jockeys – and it quickly became clear that the jockeys were sitting on a pretty good horse. It always has to come back to people – it is people who are going to have to execute. You want to look for ambitious founders.”

Getting things done While the idea and subsequently the business is obviously important, the process in which things are done within a start-up is another crucial indicator of whether an ed tech business holds unicorn potential. Staton, of Learn Capital, says: “Good investors pay attention to process. In addition to evaluating people, their character and their skills, you need to look at how the company is managing itself.”

This includes whether they are efficient with cash, have the right systems in place and how they prioritise strategic decisions and goals, for example.

“There’s a catch-phrase that most companies don’t starve, they drown. This means that they kind of die from taking on too much, and running out of money,” says Staton.

According to Staton, business with unicorn potential showcase growth in revenue of at least 10% a month, or expand their userbase by 30% over the same period.

Charles McIntyre, Ibis Capital

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“Once a company starts to achieve these different growth rates, a lot of the other indicators matter less and the company starts to achieve high valuations relative to their trailing fundamentals.

“If you’re trying to spot a little pony that will grow into a unicorn before anyone else spots it, you pay attention to people, process and positioning, a lot.”

But if investing later, at a growth stage, in companies that have “already made it”, this matters less and the business fundamentals matter more, he says.

Janine Manning, Crimson Education

EducationInvestor Global • June 2020

GLOBAL: ED TECH

Elizabeth Wills Chou, investor at Leeds Equity Partner, a US-based private equity fund that invests in knowledge industries.

One essential aspect of any start-up, though, is the value it adds, she says, suggesting that investors examine the impact a business has made on its industry or clients.

“It’s a matter of speaking to the users and understanding how a tool is being used. At the early stages, you’re sort of looking for indication that this product is improving student learning, access, retention, engagement or leading to gains in learning and workforce advancements, for example.”

If a business adds value and has impact, the likelihood is it will turn into a profitable venture, she says.

Scaling for success

Early doors and potential flaws The tricky part about assessing the value of early-stage companies is that widely monitored business metrics, such as EBITDA and profit margins, are in negative territory on balance sheets as profit is used to finance further growth.

Investors must seek out other indicators, many of which are less tangible and so harder to gauge.

“Sometimes at the very early stages, the evidence of performance and outcomes and be quite anecdotal,” says

No investor has a fool-proof formula for predicting ‘potential’. It’s a buzz-term among investors, yet most struggle to point to exactly what it comprises. One component that is frequently referenced, however, is scale – or, rather, a company’s ability to achieve it. Pablo Langa, managing partner at EDT Partners, a global education consultancy, explains that ed tech businesses unable to generate revenue beyond their home markets will struggle to attract the attention of investors.

“You have to be able to demonstrate that you can operate at a global scale,” he says. “Anyone who wants to be something relevant has to be able to scale. You can’t put all your eggs in the US or Chinese market.”

Even then, scalability on its own is not enough, as scale is relevant to the size of the market within which a company sits, and competition levels.

Ibis Capital’s McIntyre says that investors who understand fully a market’s nuances have a better chance of building a unicorn within it.

“It’s about understanding potential within the context of what is realisable within the market – that is key to identifying what is going to be successful and what’s not,” he says.

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Pablo Langa, EDT Partners

EducationInvestor Global • June 2020

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GLOBAL: ED TECH

▶

For instance, selling new content or technology into schools across Europe may sound like a great opportunity, until one looks at the complexity of the buyer landscape: multiple budget holders, varying education systems and language barriers.

“It’s about understanding how the jigsaw fits together and whether you have the right team to complete the picture,” says McIntyre.

Nothing comes for free While some investors, when assessing the potential of early-stage companies, consider user growth a key indicator of success, others prefer to reference oldfashioned financials.

Melody Lang, founder and director of MPA Education, which invests in ed tech businesses, says: “The companies and solutions that gain traction based on their user

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numbers and not revenue potential really freaks me out.”

She explains that monetising an ed tech solution with thousands, if not millions, of users can be “tricky”, adding: “You have to be really clever in education in the way that your end user is not always your end customer.”

Some ed tech unicorns with little or no margins and eye-watering valuations give weight to Lang’s concerns. VIPKid, which connects English-language teachers in the US with hundreds of thousands of Chinese students via its platform, reportedly struggled last year to raise the $550 million it sought amid concern among investors that its strategy to chase scale over profits was detrimental to its long-term success. GSX Techedu, a publicly listed Chinese competitor to VIPKid, has been accused by several short-sellers of fabricating its user numbers to woo investors.

EducationInvestor Global • June 2020

GLOBAL: ED TECH

Patience is a virtue (that private equity doesn’t have)

says: “Venture capital embraces chaos, while private equity embraces control.”

On the quest for a unicorn, investors need not only to be patient when it comes to returns, but also when finding companies and management teams worth backing.

“It takes a lot to get our chequebooks out but it doesn’t take a lot to get our attention,” says Staton, who reckons he invests in just one out of every 200 businesses that he meets with.

Almost all ed tech unicorns are born and raised on venture capital. Venture capitalists, the managers of funds for fledgling companies, place lots of relatively small bets in the hope that perhaps one or a handful will pay off much later down the line.

“It’s sort of like posh gambling,” says angel investor Manning, whose consortium recently sold 5% of its shares in Crimson Education for a price that represented 59-times its earnings. The investment No magic formula The world of venture investing is had tripled in value. wrought with complexity and unknowns Venture capitalists tend not to take and there is no magic formula for control of businesses, and instead let the founder-managers steer the ship. success, but it’s worth remembering The issue of most Venture capital’s older sibling, private the four P’s – people, process, potential financial investors equity, on the other hand, tends to buy and patience – when placing bets on majority stakes in businesses with the fledgling firms. is that their horizon aim of selling them on for a profit Identifiable points of differentiation is four-to-five years. typically within five years or less. are also essential when developing In this market, But ponies don’t grow into unicorns unicorns in saturated markets you probably need overnight, says Ibis Capital’s McIntyre: (just search ‘maths solver’ in your more like seven“The key message for this type of mobile phone’s app store to see for yourself). market is about having patience in to-nine years terms of building businesses because “Around the world, we see way the cycle is longer. The issue of most too many players doing the same financial investors is that their horizon thing,” says Langa, of EDT Partners. is four-to-five years. In this market, “I’m not going to say all the wheels you probably need more like sevenhave been invented – but they to-nine years.” pretty much have.”

Some take an even longer view. “We look to build Winners are willing to embrace consolidation, says a portfolio where the valuation 10 years from now Langa, in order to gain market share more quickly. is exponentially larger than today,” says Staton, of “Governments, school networks and universities can Learn Capital. only work with so many providers in one segment,” He says that venture capitalists expect “to lose money he says. “With the growth of similar niche initiatives, on 30-40% of investments”, while 10-20% will “create relevant market share will have to be achieved via exponential returns that drive value”. In summary, he business consolidation.” n

EducationInvestor Global • June 2020

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GLOBAL: M&A

On the rebound When will deal volumes recover? The question is not if, but when, writes Josh O’Neill on the back of an EducationInvestor Global webinar

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EducationInvestor Global • June 2020

GLOBAL: M&A

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p until around February, European education businesses were riding a wave of fresh capital supplied by perhaps the most diverse range of investors to date. Private equity funds continued to drive growth in the lower- through upper-mid-market, which last year saw 30 deals, while patient capital from family offices and pension funds bankrolled six multibillion-pound buyouts, according to consultancy EY-Parthenon. Deal volume was at the highest point in a decade; valuations were, too.

“Investing in education was really hot in the past several years leading up to 2020,” said Derrick Betts, associate partner at EY-Parthenon, during a webinar hosted by EducationInvestor Global. “The sector moved from being seen as a traditional mid-market segment when some significantly large deals came through”, propelling the industry to a new level of maturity and scale.

Then, the Covid-19 pandemic struck.

Suddenly, owners, deal-makers and investors were scrambling to get a handle on companies’ finances, as revenues plummeted when government-enforced lockdowns closed almost all educational centres indefinitely. (It is still unclear when many of them, including universities, will re-open.) Debt quickly became more expensive and less readily available. Stringent social distancing measures

EducationInvestor Global • June 2020

confined the majority of citizens to their homes, preventing business meetings, in-person interviews with management teams and other key components of due diligence.

There is, of course, Zoom and other video-conferencing platforms. But, as one private equity investors puts it: “Video conferencing doesn’t quite give either side enough confidence to go into a partnership together.”

Several important deals that were in play – including the sales of pathway provider Oxford International and French childcare giant Babilou, among others – were “put on ice”, sources told this publication in March. Meanwhile, private equity firm Silverfleet Capital cancelled entirely the sale of portfolio company Lifetime Training, an apprenticeship provider, after its revenues were decimated by the effects of the pandemic.

And although a handful of transactions have closed in recent months – for example, London-listed Myanmar Strategic Holdings’ purchase of Wall Street English Vietnam, and China Education Group’s takeover of Richmond, The American International University – deal flow in the sector has dried up significantly. It would take a minor miracle for transaction volumes to reach those recorded last year. A key question is now: how long before M&A activity in the education sector returns to pre-pandemic levels?

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GLOBAL: M&A

Derrick Betts, EY-Parthenon

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A poll of around 100 webinar viewers carried out by EducationInvestor Global found that the majority (57%) thought it would take between two and three years; 31% one year or less; and 12% three years or more. But Jamie Edge, head of education & training M&A at EY, was more optimistic. Speaking on a panel alongside Betts, he said: “I’d take a slightly more favourable view and say about two years.”

Edge, a corporate financier, said that while serious conversations with private equity houses around management buyouts had become less frequent, talks with venture capitalists, who provide fledgling firms with growth funding, had gathered momentum. Many companies, particularly ed techs, experienced surges in interest and user numbers when nurseries, schools, universities and tutoring centres were ordered to close in the UK in March. This has led a number of them to spark discussions around fundraisers, he said. “We’ve had growing businesses in the digital end of the market come to us saying that they’re inundated with demand,” said Edge. In May, Twinkl, a digital educational publisher, found itself among the top-100 most frequently visited websites in the UK. “In a lot of cases, many of them have been giving their products away for free to drive adoption and now need help, in terms of funding, to help them cater to new, increased demand,” he added.

According to HolonIQ, a data provider, venture capitalists poured $3 billion into ed tech organisations during the first quarter – a period when hundreds of millions of students worldwide were forced to switch to home learning. More recently, in May, UK-based ed tech BibliU netted $10 million in a Series A funding round, after virtual flashcard platform Quizlet raised $30 million and MasterClass, which sells video lessons taught by celebrities, raised $100 million.

Bouncing back In the wider education market, companies’ ability to ’bounce back‘ once operating conditions improve will be a crucial

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Jamie Edge, EY

factor, according to Rory Nath, investment director at ECI Partners, a UK-based buyout house. “Frankly, that is the overriding factor right now,” he said, while reiterating Edge’s observations around venture capital, “but another I consider critically important is a clear angle of differentiation”.

Nath, whose fund focuses on chiefly on educational services and ed tech, said he had noticed growing interest in education companies providing “niche” services or products to professionals and consumers in specific fields. As one of many examples, he flagged gardening, interest in which has reportedly boomed since people have been confined to their homes with, in many cases, little work to do. Investors will question, however, whether rapid increases in sales will be sustained in the longer term, said Nath.

Not all segments of the education industry will recover at the same pace because businesses, depending on their remit and online capabilities, have been impacted in different ways, explained Sam Fenton-Whittet, investment director at private equity firm Oakley Capital. He pointed to international student recruitment as an area in which performance will be “very hard to predict over the next three years”, while nursery operators, for instance, should see demand return relatively quickly once they are able to re-open.

Private equity has historically steered clear of education businesses that rely heavily on government funding – either directly or indirectly. Many buyout funds have little or no appetite to own private companies that cater to publiclyfunded education providers, such as school suppliers or catering businesses, for example. But the coronavirus crisis, which forced central banks and governments globally to spend billions propping up economies through quantitative easing and statebacked support schemes, could alter this perception, FentonWhittet argued. “We could see sectors that were perceived as quite risky, because of their exposure to government funding, become more attractive,” he said. Edge concurred: “It’s probably not a bad place to be at the moment, because there is a defined funding model supported by government.”

EducationInvestor Global • June 2020

GLOBAL: M&A

Sam Fenton-Whittet, Oakley Capital

The good, the bad and the average EY-Parthenon carried out an analysis of Covid-19’s impact on a range of sub-sectors within Europe’s education industry in an effort to identify how valuations will be affected as a result of the pandemic. It graded 11 educational segments – some which utilise traditional delivery models, and others that are technology led – based on their ability to obtain financing and long-term outlooks.

The consultancy found that traditional corporate training providers would be hardest hit, suggesting the sector’s long-term outlook and financing prospects are “weak” and that the effects of Covid-19 would be “highly negative”. According to Betts, this is because large corporations tend to cut spend on management training and other non-essential outgoings during periods of recession when revenue is weakened.

Meanwhile, K12 service providers, which sit in a “fundamentally strong” sub-sector, according to the research, will fare better, suffering a “modestly negative” impact. Private schools were considered to have a “strong” long-term outlook and access to finance but would also experience a “modestly negative” medium-term impact.

Higher education services, which encompasses pathway providers, would experience a “highly negative” impact in the medium term, according to EY-Parthenon, though the sector’s long-term outlook and access to financing remains “strong”. Apprenticeship providers and traditional universities were given the same long-term outlook, but the impact on these businesses would be less severe in the medium term.

Early years and technology-led K12 services ranked in middle ground, as the sectors’ long-term outlooks and Covid-19-related impacts were scored “medium”.

Technology-led corporate training would be “largely unaffected” by the pandemic, EY-Parthenon found, rating its long-term outlook as “medium”.

EducationInvestor Global • June 2020

Rory Nath, ECI Partners

For digital degree providers and online universities, Covid-19 would be a “net positive”, the firm said, noting that their long-term prospects and access to financing was “strong”.

Looking forward, taking into account all sub-sectors, Betts said: “The fundamentals of investing in education remain the same and many business models are super-attractive.

There’s no doubt that investors will be drawn back to the sector because of its long-term fundamentals.”

The show must go on The pandemic and its financial effects will ultimately cause pricing to “normalise” across the education industry, and in some sub-sectors, “pricing will go down,” said EY’s Edge. This would almost undoubtedly be welcomed by investors – but not vendors – in the private schooling sector, in which priceto-earnings multiples last year consistently floated in the mid to high teens, and under some larger deals exceeded 20.

Whatever the extent of the fallout, and even if lockdowns continued into next year, deals will eventually be done, panellists agreed. Fenton-Whittet said that Oakley Capital, his fund, has commenced digital due diligence on two education companies.

In time, the show will go on. It has to. After all, the global private equity industry is sitting atop of more than $2.5 trillion of unspent capital known as ‘dry powder’ – and partners of buyout funds do not earn management fees and carried interest, or carry, unless they buy and sell businesses.

A point will come when money will begin to burn a hole in private equity’s pocket. This will drive growth in the midmarket, the largest segment of the European education arena, and the rest, in theory, will follow. n The webinar can be viewed at ipevents.net/ webinars/educationinvestor-webinars/shelterfrom-the-storm-investing-in-education-amidthe-covid-19-pandemic

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GLOBAL: 10 MINUTES WITH...

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minutes with…

MarcoPolo Learning Educational media provider MarcoPolo Learning developed a product that reaches some 500 million households across the world. Patrick Dumas, an investor and the company’s head of business development, sets out its strategy as it looks to cap off a $15 million funding round amid a crisis that catalysed an unprecedented shift to home learning To begin with, give us the elevator pitch for MarcoPolo and run us through the company’s origins MarcoPolo Learning is a rapidly growing educational media company for children aged 0-8.

The company was started by two regular dads who realised that there weren’t any interactive tools out there to help their own children to explore the world. So, they brought together a team of PhD early childhood education specialists and children’s media experts to help create these products for families all over the world. Around 90% of the brain develops before the age of seven and there are estimates that some 80% of children entering school today will work in jobs which currently do not exist, so it is super-important to prepare children for the 21st century and give them the necessary skills to succeed whatever the future may hold.

MarcoPolo is well on the way to realising its mission of helping provide high-quality, interactive learning content to millions of children at an age when it matters most. The current Covid-19 situation is very supportive for online learning and has expedited the necessity for at home-learning resources. MarcoPolo is exceptionally well positioned to benefit from this surge in home learning demand.

Tell us about your funding rounds to date and what you have accomplished with deployed capital To date, MarcoPolo has raised approximately $26 million, the majority of which has been invested into developing technology, intellectual property (IP) and content. Some accomplishments:

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• 10 million organic downloads in over 100 countries • Reached number one in over 70 countries and won numerous awards • Nominated for an Emmy and also won one of the most prestigious awards in the children’s space – Best Learning App 2019 - Original Preschool – at one of the main events for children’s media globally, Kidscreen, in Miami • Launched 52-episode TV series called ‘The Polos’.

This was produced by the anchor investor of our Series A, Boat Rocker Media. Licensing deals closed worldwide, including with Discovery Family (US), Nat Geo (LatAm) and Viacom (India). The show now has a reach to some 500 million households globally, and recently launched at number one in the kids’ section on Alibaba-owned Youku in China.

You’re in the middle of fresh funding round. Can you tell us about that – what you’ve raised so far, how much left to go, what the money will be spent on, and so on?

We are currently raising a $15 million round and have already closed approximately $9 million. The lead investor of the round is New Oriental, which is one of the largest education companies in the world, based in China and listed in New York. Now that MarcoPolo has reached a critical mass of IP, our core focus is on distribution and sales, so we plan to use this capital for building the growth, marketing and sales side of the business.

EducationInvestor Global • June 2020

GLOBAL: 10 MINUTES WITH...

What do you look for in a partner/ investor?

MarcoPolo is lucky to have many strong strategic investors who are very helpful as we grow and expand globally.

Some of these investors have access to large audiences.

Whether an investor can add strategic benefits or not, we are always looking for investors who understand and are supportive of our mission and vision.

The company has gained significant traction in international markets.

Can you tell us about what you’ve accomplished so far in terms of your international ambitions, and what the next step is?

Patrick Dumas, MarcoPolo Learning

We have had around 10 million downloads of our products in over 100 countries so far, of which around a third come from the US, another third from China, and the remainder What portion of users gained since the pandemic began does MarcoPolo expect from rest of the world. Key markets for us in the next 12 to retain once it subsides? months are the US and China. We are already starting to collaborate with many education companies in the US and It looks like Covid-19 will continue to drive demand for homein China the lead investor of this current funding round is learning content in the short and long term, as it has caused a market shift towards home learning one of the largest education companies there with four million students. being an important part of the education We are planning to launch a coecosystem. MarcoPolo is forecasting developed product with New Oriental continued rapid growth in its numbers. before the end of 2020, for distribution MarcoPolo is very Talk to us about the to its mass audience. well positioned to

Have you seen an increase in demand for MarcoPolo’s offering since the Covid-19 pandemic began to unfold in January?

benefit from this short- and longerterm demand shift

Covid-19 has definitely caused a significant increase in demand for home-learning products and it has also expedited schools’ requirements for online and home-learning capabilities. MarcoPolo is very well positioned to benefit from this short- and longer-term demand shift.

We have experienced a 50% increase in trials and subscribers to our flagship early learning platform during the outbreak.

competition in the educational media market and why MarcoPolo’s offering is unique

Most media companies sell entertainment and most ed tech companies sell education; MarcoPolo blends education and media.

Most educational content is low-quality design, whereas MarcoPolo is bringing mainstream media-style quality to educational content and developing a strong brand that families can trust and want in their homes across the world.

What do you consider to be the company’s weak area(s) – and how will you work to improve this/them?

Due to the fact that we have developed a significant amount of versatile educational IP and products, the opportunities are endless. However, we need to be careful not to try too many things in the short term. We need to focus on our core products and make sure they continue to thrive – and then we can broaden the offering, channels etc.

What can our readers expect to see from MarcoPolo throughout the rest of this year? What does the firm’s 2020 roadmap look like?

The focus areas for this year are to complete the second close of our funding round, close more partnerships, build out our marketing and sales team, drive growth in subscriptions and revenues and launch our China product. n

EducationInvestor Global • June 2020

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EUROPE: HIGHER EDUCATION

University challenge – the international edition The UK higher education sector is bracing for a multibillion-pound loss come September, when a sharp fall in international student enrolments caused by Covid-19 will wreak havoc on universities’ finances. With a spate of potential mergers looming, Josh O’Neill wonders if it is time for the sector to think small – and agile

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decades-long shift to a market-based higher education system in the UK – mirrored in Australia, Canada and the US – began in the 1980s with the introduction of full tuition fees for international students. Now, three decades on, a dearth of foreign admissions poses an existential threat to some universities’ very existence.

Locked in their home countries due to widespread travel bans as the Covid-19 pandemic shows little sign of abating, and unwilling to pay full whack to undertake online degrees, hundreds of thousands of international students are rethinking their study-abroad plans.

This is a major problem, because, over the years, the government has withdrawn financial support in the form of grants in favour of higher tuition fees.

Meanwhile, propelled by burgeoning middle-classes across the world, the international student market has grown at around 6% a year – even throughout former crises. Many institutions are now hooked on income from lucrative foreign students – who sometimes pay three-times that of their domestic counterparts for degrees – and withdrawal symptoms could prove fatal in due course.

According to London Economics, which was commissioned by the University and College Union to assess the extent of the fallout, UK universities could collectively lose £2.47 billion next year if, as its forecast suggests, first-year enrollments of international students fall by 47%. Universities UK (UUK), the sector’s lobby group, has warned that some institutions will go bust if the government does not grant a bailout (it has not,

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Anip Sharma, L.E.K. Consulting

so far). The University of Manchester, at which one in eight students is Chinese, has said it expects to lose £270 million and will cut jobs and staff salaries to cushion the blow. Across the sector, between a quarter and a third of revenues are derived from international students. This publication, from conversations with market sources, is aware of at least five institutions that are exploring mergers to avoid outright collapse.

EducationInvestor Global • June 2020

EUROPE: HIGHER EDUCATION

James Pitman, Study Group

A real catastrophe Because universities’ overheads – lecturers’ salaries, rent, insurance, maintenance costs, energy bills, software licences, and so on – remain fixed, “if international students do not show up, it could mean a real catastrophe for the sector,” said Anip Sharma, partner at L.E.K. Consulting’s global education practice, during a recent webinar hosted by this publication. “The impact is very real.”

Just how “real”, though? The top 15 UK universities by measure of international students collectively enrol more than 100,000 learners, according to QS, a provider of education analytics. Some forecasts indicate a mild dip in international enrolments, followed by a relatively quick recovery, once ‘normality’ – namely flights and in-person instruction – resumes; others suggest a plunge from which it could take five years to recover. A survey of more than 180 webinar viewers carried out by this publication found that most (58%) thought it would take between two and five years to reach pre-Covid-19 levels of international student mobility. Sharma reckons it is reasonable to expect a 10% drop in international student enrollments globally.

Others are more optimistic. James Pitman is managing director, UK and Europe, at global pathway provider Study Group, which surveyed more than 8,000 students with offers in place to begin university studies overseas in September. During an online panel discussion hosted by this publication in late April, he suggested that a fall in September’s international student intake would be a one-off, and noted that “demand in the pipeline for January intake is growing very, very fast”, driven by large numbers of deferrals. “There’s no doubt that there will be a dip in September… but that net figure, over a longer period of time, will recover,” he said. “Plus, you have to remember that students with offers are already quite a long way along their journeys and will still want to come.”

EducationInvestor Global • June 2020

Glynne Stanfield, Eversheds Sutherland

But an April survey by the British Council of nearly 11,000 Chinese students who had applied to, or were already enrolled at, universities overseas – in other words, in the “pipeline” – found that 39% were undecided about cancelling their plans, while over a fifth (22%) were “likely or very likely” to do so. China is the UK’s largest source market for international students. Last year, more than 115,000 study visas were issued to Chinese students – accounting for nearly half (45%) of all international study visas.

Pressed on whether the British Council’s findings were accurate or not, Pitman’s outlook remained rosy: “We have 500 staff in 40 offices around the world. They’re still engaging with agents, students, parents and stakeholders and it’s not quite as bad as one might suppose from some of the data that’s out there.”

To be sure, British universities are not in hot water just because international students are in short supply.

Before the pandemic struck, universities in the UK were facing potentially perilous challenges. The governmentordered Augar review dissected the workings of the sector, identified flaws – such as too many low-quality courses, excessively high fees, under-funded further education providers and over-paid vice-chancellors – and suggested remedies: cull courses deemed as poor value, reduce domestic annual tuition fees to £7,500 from £9,250, and divert more cash to colleges delivering vocational training.

These recommendations, however, were said to have later been quietly shelved as Brexit planning consumed Whitehall throughout last year.

Existing pain The pandemic has exacerbated existing pains felt by thinly capitalised and loss-making institutions across the UK. The sector-wide debt-to-income ratio stood at 37% last year, equivalent to £12 billion. In November, ratings agency Moody’s cut the credit ratings of eight of the country’s universities, including Oxford and

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EUROPE: HIGHER EDUCATION

▶ Cambridge, from ‘stable’ to ‘negative’. Universities with mounting debt and dwindling enrollments might have struggled to meet the cost – estimated to be around £10 million, on average – of switching to online instruction in March when the government locked down the nation to curb the spread of Covid-19. With all tuition currently carried out online, universities which took out hundreds of millions of pounds in loans to finance flashy campus expansions are now questioning when they will make a return on investment – if at all.

For some, pre-coronavirus financial pressures proved insurmountable. GSM London, one of a handful of private universities in the UK, which was owned by buyout house Sovereign Capital, folded last summer following a consistent decline in student numbers, forcing banks to write down nearly £30 million in sour loans.

Richmond, The American University – another private institution – flirted with bankruptcy after its philanthropist benefactor died, but was spared from extinction in April when it was acquired by a Chinese investor. Cases like these demonstrate how tough the higher education operating environment was before it was infected

by Covid-19.

And, with suggestions that distance learning may have to continue into next year, it could remain challenging for some time, prompting further consolidation as the market recalibrates, pressing less-well-insulated institutions closer to the wall. During an online panel discussion alongside Pitman, Glynne Stanfield, partner at law firm Eversheds

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Sutherland, said: “I’ve no doubt there will be mergers in the sector and I think some of these mergers will be like the bank mergers of 2008 – they will be forced onto institutions within a very short timescale.”

Still, questions remain over whether Boris Johnson’s government would let a university – or universities – fail.

In 2018, Sir Michael Barber, the then-head of the Office for Students (OfS), which regulates higher education in the UK, said it “would not bail out providers in financial difficulty”.

Since then, this publication has on several occasions put the question to the OfS, Department for Education and universities minister – to no avail.

But Eversheds Sutherland’s Stanfield thinks otherwise.

“In the short term, I don’t think that the government’s actually going to allow an institution to fail,” he said.

Indeed, in May, the DfE gave the higher education sector an advance on tuition fees worth up to £2.6 billion to help tide universities over with a dose of liquidity and released an additional £100 million in research funding. It stopped short, however, of granting an outright bailout.

Local heroes Universities are important to local economies. They help fuel demand for housing, employ sometimes hundreds – if not thousands – of local people, and provide businesses in regional supply chains with income. It would be politically difficult for any government to consider letting a university – or universities – collapse, especially in less affluent towns and cities, where institutions most at risk tend to be situated.

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EUROPE: HIGHER EDUCATION

Anthony Seldon, University of Buckingham

Nevertheless, “this government is not particularly supportive” of the UK higher education sector, said Anthony Seldon, the outgoing vice-chancellor of the University of Buckingham. “They [government] prefer FE [further education]” – which under the Augar review’s recommendations would receive a £1 billion injection – “and think that too many universities… are inward-looking and self-regarding. I don’t agree with that.”

Seldon said that his soon-to-be former employer, which is a private university, was considering asset sales to help it weather the financial impact of the pandemic, even though its digital degree offering was relatively advanced compared to other universities, most of which do not offer full onlineonly degrees.

He expected “we will see a bleed between HE [higher education] and FE like we’ve never seen before” in the years to come, as funding pressures mount on both sectors, driving consolidation and collaboration. His advice for universities facing steep falls in enrollments? Offer a wider variety of course lengths and be more flexible in terms of start dates.

“My belief is that students in the new world, post-Covid, will want to get their degree over and done with more quickly,” said Seldon. “Two-year degrees work very well.

Students like them; it saves them a lot of money.

“And, talking about entry points, there is nothing sacrosanct now about September. This idea [of a September intake] goes back to the 1800s and relates to the harvest cycle. Why not January? Why not April? Universities should offer a generous port of entry.” In the long run, “we’re going to see a superbly strong British higher education sector,” he added, “but it will be much more agile”.

As citizens eagerly await a vaccine for Covid-19, which has been touted as the most efficient and effective route out of lockdown, universities – like all businesses – want and need one thing: customers. But, with warnings circulating in the sector that face-to-face instruction in lecture halls and labs may not return until next year, the immediate future of degree provision is undoubtedly online.

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Julie Mercer, Cairneagle Associates

Julie Mercer, partner at education-focused strategic consultancy Cairneagle Associates, said that universities should see long-term opportunities in blended delivery models. Courses involving a mixture of online learning and in-person instruction, in many cases, are more profitable due to reduced delivery costs and are highly scalable, irrespective of geographical boundaries. This could open up access to deeper pools of international students of varying affluence in a greater number of markets, said Mercer, while avoiding the financial and reputational risks linked to branch campuses.

“Transnational education should not be underestimated,” she said during an EducationInvestor Global webinar.

“Technology could afford greater opportunities to young people who can’t necessarily afford to come and spend three years in the UK.” The hardest part, arguably, about delivering online degrees is getting students to stick around: according to LINC Education, the past decade has seen a 300% jump in the number of online university students, yet digital degree completion rates remain below 20%.

In the coming months, we should get a clearer idea of what September’s intake will look like. But, whatever the outcome, it would be foolhardy of vice-chancellors to assume that their institutions will be bailed out, no matter what. That, as the OfS has warned, would risk indirectly incentivising reckless decision-making and profligate spending.

The concept of ‘too big to fail’ went out the window with the last crisis. With a spate of potential mergers looming, perhaps this time universities need to think small – and agile. n Webinars are part of EducationInvestor Global’s commitment to its readers to provide the latest information and updates during the ongoing pandemic. For more information on our upcoming webinars and to watch recordings of previous broadcasts, visit ipevents.net/webinars

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EUROPE: EDUCATIONAL PROPERTY

Building for the future Emma Cleugh, partner at global property consultancy Knight Frank, offers advice to schools and universities across the UK on how to unlock value in educational buildings amid the coronavirus crisis, and why operators and investors should start planning now for the post-pandemic world

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he outbreak of Covid-19 has significantly impacted almost every facet of our everyday lives, but nowhere is this more obvious than in the education sector.

School classrooms and playgrounds, as well as university campuses, across the country have stood empty for weeks, as our society gets to grips with the effects of lockdown on our daily routines.

But what does this mean for the future of education?

It is likely that, not only will it force us to reconsider how education is delivered in the UK, but it will also make educational organisations reassess how they can use their physical spaces more efficiently and repurpose surplus real estate assets.

Reports from the kitchen-table classroom is that the novelty of learning from home is wearing thin, as parents struggle to balance work commitments with home schooling, while students miss their friends and daily social interactions that form a key part of the educational experience.

As with many things at this time, there is now an opportunity to rethink what educational platforms will need to deliver, and should provide, going forward, on account of changing dynamics in the educational market.

At one end of the spectrum, we are already seeing that the internet and ever-advancing artificial intelligence can provide us with facts, and, as a result, we have seen significantly increased investment in remote-learning platforms.

In some cases, there are obvious (albeit uncomfortable) advantages in substituting teachers for tech, including making education more flexible, accessible and affordable.

This is especially true at a further and higher education level, where a long overdue ‘root-and-branch’ overhaul has already been identified But there are significant risks too. Great teachers – and great settings – inspire, and for this there is no substitute.

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As such, it is hard to imagine people and places vanishing completely from the heart of a good, well-rounded education; however it feels inevitable that some changes as a result of Covid-19 are already underway.

Lockdown has proved that nearly everything can be done online – including learning, communication, homework submissions and assessments.

Education is, however, so much more than facts, coursework and exams. It is the values that are instilled in us; it is deep interest in subjects that is stimulated by inspirational teachers in lively classroom debates. Such environments and experiences are hard to replicate on a webinar. The environments and people around us shape the way we, as individuals, move through school and university and into work and adult life.

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EUROPE: EDUCATIONAL PROPERTY

As a result of this, we are beginning to see owner-operators Educational organisations are also now looking closely and investors across the education sector look at evolving at how their real estate assets can work ‘harder’ for them, technology in the context of their current property holdings, as to how they look to boost their income in other ways. and weigh up how to invest in both to achieve an optimum A straightforward example being the sale and leaseback mix. Thus, we seeing organisations seek to combine the of a student residence at a university, or the promotion best technology with efficient use of real estate – the aim and sale of surplus land or buildings for a senior living development, in order to generate capital. These funds can being to ensure the collective experience is enhancing and then be ploughed back into the technology enriching both in reality and virtually.

We are seeing owner-operators and and the real estate now required to ensure investors consider closely all of the land the provision of the very best resources.

Educational and buildings across their holdings, to At Knight Frank, we are currently organisations are decide what works well and what space involved in a variety of projects of this also now looking could be better utilised and improved. A nature. blended model will, no doubt, emerge, What we have found is that many closely at how with a balance being sought between owner-operators and investors are already their real estate teachers, technology and the on-campus looking to the future, considering how the assets can work experience, with tech being front and requirements will change, and embracing ‘harder’ for them centre far more than it ever was before. a shift towards blended delivery models In universities and international involving greater use of technology. Many schools, for example, the demand profile are eyeing far wider global audiences, and may change: we may see shorter stays by are taking an incisive look at their real overseas students but a vastly increased global audience. estate to see how it can better serve the business and enrich Students from around the world may tap into world-class the student experience. educational offerings via virtual lectures and online learning, Ultimately, with all of the changes that we are seeing, one but not may not stay long term. For these establishments, thing remains constant: we must continue ensure education more space may be needed for IT servers and to help has the power to positively change the world, even in facilitate lectures being delivered globally online. In addition, these uncertain times. This is where a fine balance between current expansion plans for more classrooms may need to increased use of technology and continued classroom-based learning will need to be reached. n be re-evaluated.

EducationInvestor Global • June 2020

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AFRICA: ED TECH

Conquering a continent To reach unicorn status in Africa’s private education market, investors must understand fully its challenges and create innovative continent-wide solutions, writes Henry Warren, chair of African ed tech Watobe

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world’s learners will be located in African countries and, t the tail end of the last century, Bob the Builder by measure of accessible population, Africa will soon be went to Japan. Or, rather, HiT Entertainment, the home to the world’s largest education market. company that had owned the distribution rights to the kids’ TV show, decided that the country’s roads were The market is big, for sure but is it ‘broken’? Across the paved with gold as it sought out new Eastern territories in continent, 40% of children fail to reach an educational minimum measured by the United Nations. However, this is which to expand. The firm had no prior experience of this less surprising when one considers the educational budgets market or others like it but, its executives thought, how of African countries. Tanzania, for instance, has an education hard could it really be?

With hindsight, what happened should have been budget equivalent to just 2% of England’s, with twice the preventable. The reasons why will later become clear. number of children. Add to this a shortage of around 1.2 Much like you, I’ve been navigating the daily ups and million teachers across the continent and it’s easy to see downs of the coronacoaster, the 21st century’s most why minimum standards are not being met.

What about ‘complex’? Well, all depressing ride. Most of my video conferences start with the “we live in education markets are complex, some strange times, don’t we?” preamble. Such more so than others. The education chatter seems to have – for now, at least industry is famous for turning large fortunes into small ones – and Africa – replaced small talk about the weather Africa requires is no exception. The continent’s state which is, I feel, at least one positive. investors to At some point, conversations inevitably sector is so complex and inefficient that think big – far turn to ed tech, my area of expertise, the private sector is booming. In the UK, bigger than they and its ability – or, as in many cases, around roughly 7% of the population is do in the UK inability – to deliver both profits and privately educated. Across Africa, this efficacy. Then, more often than not, talks figure is around 24% – and rising. segue to “where” – namely, where should But is there actually any real money my clients, who are mainly investors there? Yes, there is – and I’ve seen it for and chief executives, be looking for myself. I have been chased down the opportunities? streets of Shinyanga in rural Tanzania by mothers wishing to pay me $10 for education resources. I have seen Kenyan, The answer is Africa Ghanaian and South Africa parents pooling significant I follow a simple rule when identifying education markets in portions of their salaries to finance private education – and which to invest. I’m only really interested in those that are have heard their cries of delight when solutions actually BBC. That is, big, broken and complex. Africa’s education work. The demand is there; so is the money. industry fits the bill on all fronts.

China’s much-vaunted education market, in which interest Think big has grown rapidly among foreign investors in recent years, Africa requires investors to think big – far bigger than they do also fits these criteria to an extent; it’s certainly big and in the UK. Frankly, no African country alone (with the possible exception of Nigeria) is that interesting to investors. One complex, and both regions have a lot of children. But by the end of the century, the population of Africa will be cannot build a unicorn serving just Rwanda. But one absolutely 4.5-times that of China. A demographic shift is already can if one understands fully Africa’s wide array of countryunderway and within the next decade, the majority of the specific markets and plans to scale across the continent.

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EducationInvestor Global • June 2020

AFRICA: ED TECH

Henry Warren, Watobe

One absolutely can if one pursues a business-to-consumer model, rather than business-to-business (under which products and services are sold to schools and governments).

One absolutely can if one has an enticing product that parents love and one has the time and nous to iron out those operational creases along the way.

So, what’s any of this got to do with Bob the Builder, HiT Entertainment and its Japanese adventure?

I have no doubt that the next big race in education will be for Africa. I am also equally sure that many companies and investors will jump in feet first without truly understanding the continent, its many cultures, markets and ways of working – just as HiT Entertainment did twenty years ago in Japan.

What did it get so wrong, then? Bob had only four fingers – a common and innocuous trait of Western cartoon characters.

But in Japan, where members of Yakuza gangs infamously chop off their little finger as an act of fealty and bravery, it was a sure-fire sign that Bob was renovating by day and garrotting by night. Yes, HiT Entertainment had inadvertently given Bob the Builder a second career as a hitman, which at the time introduced children to the alternative meaning of “fixing”.

Because it had failed to do its homework, the firm eventually had to withdraw the cartoon after a deluge of complaints, despite having spent large sums re-rendering Bob’s hands. It was too late; the damage was done.

In the race to conquer the African education market, there will be winners and losers. Ultimately, it will be the children that will win, because right now they are being left behind but if you do decide to enter the market, just make sure you understand it fully first. n

Henry Warren is the former director of innovation at Pearson. He is chair of Watobe, an African ed tech company, and is an investor in and advisor to ed tech businesses.

EducationInvestor Global • June 2020

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ASIA: CHINESE INTERNATIONAL EDUCATION

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EducationInvestor Global • June 2020

ASIA: CHINESE INTERNATIONAL EDUCATION

Staying put To find the future of international education in China, one doesn’t have to look far, writes Philipp Ortner, managing director of Chengdu-based Elite Education Consulting

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ver the past 20 years or so, we have witnessed an ever-increasing internationalisation of education in China. This has meant that, on a whole, leading education institutions in the West could expect a rising tide of Chinese students to enrol at universities abroad, with a fastgrowing minority leaving at a younger age. Internationalisation of education did not only see a surge in Chinese student mobility, but also led to an increasing number of Western schools launching offshoots in China, propelling the growth of the bilingual segment, operators in which offer a blended curriculum combining Chinese and Western elements.

The Covid-19 pandemic, however, has had a major impact on internationalisation of education in China. And while the pandemic will fail to end this trend entirely, it will change the face of its development in a post-pandemic world.

The Chinese word for “crisis” is composed of two characters: one representing danger and the other representing opportunity.

As for the coronavirus crisis, international education is one of the hardest hit industries. But as schools and educators continue attempts to mitigate damage, the future will create new opportunities and we can already see a glimmer of hope for a post-pandemic renaissance of international education.

A game of face For many years, leaving China to study at one of the world’s leading institutions was seen as something glorious, and, while not being the sole reason for this decision, having a child study abroad raised the social status – or ‘face’ – of a family. The hai gui (Chinese students returning home following their studies) benefited from the advanced educational systems of the Western world, which subsequently led to a prosperous future back in China. Fast forward to 2020, and the Covid-19 pandemic has somewhat cast a shadow over foreign studies, with families reconsidering their plans to send children overseas.

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ASIA: CHINESE INTERNATIONAL EDUCATION

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Chinese parents – and grandparents, who are also considered majority of middle-class families will be more cautious about key decision-makers – are notoriously concerned about their making these kinds of investments; after all, education is children’s safety when sending them abroad; quite rightly, an investment in the future, and right now, investment in they are even more reluctant to part with their children during an uncertain future is undesirable for most. International a global health crisis. At the height of the pandemic in the schools in China pose a good solution to this problem, for they are cheaper alternatives to overseas schooling, and have UK and US, the Chinese state made an unimaginable effort the key advantage of being closer to home. to cover the thousands of international students “stranded Since the noughties, many Western brands have entered overseas”, most of them struggling to book return tickets China’s education market, opening international schools in the face of skyrocketing prices and flight cancellations.

Although schools and guardians worked feverishly to across the country and making Western education more guarantee their students’ safety, the image accessible for the majority of Chinese of young children separated from home families. At the same time, a build-it-andhas left a lasting impression in the minds they-will-come approach to developments It is very likely that of Chinese parents considering sending has meant that a Western-style education their children overseas. Therefore, it is is no longer a luxury reserved for the Chinese families very likely that Chinese families who privileged few, which has lessened the who were once were once considering sending their child prestige of being a hai gui. China has considering sending abroad will now opt for alternatives in also made huge government-backed their child abroad China – and we have already seen a large investments in education to improve the will now opt for number of families either cancel offers or quality of provision across the country. defer enrollments.

We have seen schools that would leave alternatives in China That being said, the pandemic may some Western counterparts in awe spring catalyse a larger trend, involving an up across the country, and as public education in China continues to improve, increase in young Chinese students continuing their education within China, prior to going state-owned institutions, too, will compete for students abroad to attend university. While most families argue that who value the importance of an international education. the shift towards international education delivered in China We have also seen the emergence of more daxue cheng – is mainly motivated by concerns around health and safety, university cities – which are relatively new city districts the reality, though, is that this decision is an economic one, densely populated by university campuses, state schools and too, for the pandemic has left a dent in China’s economy. international schools. We will continue to see these future As a result, vast swathes of employees and company owners hotspots for education emerge, as China is determined to are uncertain about what will come. become the centre of education for students coming from One Belt, One Road countries (Pakistan, Indonesia, Kazakhstan, The mega-rich will continue to be able to afford many Thailand and Ukraine, to name a handful). years of steep tuition fees at elite schools. But a growing

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ASIA: CHINESE INTERNATIONAL EDUCATION

Philipp Ortner, Elite Education Consulting

Homeward bound Post-pandemic, we might see a spike in demand for international schooling in China. We could be left with a situation in which a large proportion of families who once were considering sending their children abroad, now prefer a lower-risk and lower-cost alternative in China. This will, in theory, increase demand for places at international schools across the country – and both new and existing brands will seek to expand to make most of this fresh opportunity.

Since 2010, we witnessed strong increase in numbers of international schools open across the Guangdong province, as well as the provinces in the east of China around the Yellow River, such as Zhejiang and Jiangsu. The Sichuan Province and its capital city Chengdu will be a sought-after place in the future for new international schools, with three more UK brands already due to open in 2020. The Chinese government has selected a number of city districts across China as Guojiaji Xinqu (state-level priority areas), which are due to receive extensive government investment, with a large portion of it being used to fund new education facilities. For international schools planning or thinking of opening offshoots in China, a post-pandemic surge in demand could accelerate projects.

We can assume that not all age groups of students going abroad will see an equal decrease immediately after the pandemic. While in the light of the pandemic, a

EducationInvestor Global • June 2020

significant proportion of Chinese students will opt to study at international school in China, the increasing number of international schools, as well as new, state-of-the-art public schools will increase inter-school student mobility and cooperation between European and Chinese schools.

We also see an increase in sister-school agreements and agreements being signed between European and Chinese schools working towards increasing short-duration student mobility. Equally, applications to European universities are due to continue to increase, given the growing demand of the middle classes for international higher education and the continued leading position of higher education institutions in the West. Equally, not all things are gloomy for European boarding schools, as China’s middle class is still growing, and given the size of China’s population, the proportion of students studying at boarding school overseas won’t be considered small. It is likely, however, that the more renowned elite schools will continue to do well, while smaller ones will struggle and need to innovate their recruitment strategies.

It is highly unlikely that the desire among Chinese citizens to study abroad will die out anytime soon, but Covid-19 has shaken things up. Therefore, educators in China’s postpandemic future will need to plan carefully and pay close attention to new trends, one of which will see more domestic students receive international schooling on their doorstep. n

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FINANCE: DEALS

deals Specialist university buys closed-down private school to expand socially distanced campus COMPANY: AECC University College TARGET: St Thomas Garnet’s School TRANSACTION: Acquisition CONSIDERATION: Undisclosed A specialist university in Dorset, England has acquired a local private school that was set to close down after the summer term. Bournemouth’s AECC University College, which specialises in health sciences, has bought the site on which St Thomas Garnet’s School is located, opposite its main campus in Boscombe.

Chinese ed services provider raises $8m in New York flotation COMPANY: China Liberal Education Holdings TRANSACTION: Flotation CONSIDERATION: £6.41 million China Liberal Education Holdings (CLEU), an educational services provider, has raised $8 million through an initial public offering on the Nasdaq stock exchange, becoming the latest Chinese education firm to tap international investors via a US flotation. CLEU, also the firm’s ticker, sold 1,333,333 ordinary shares priced at $6 each, resulting in gross proceeds of $8 million, when its IPO closed on 12 May, after commencing trading four days earlier.

Upskilling platform raises $32m as pandemic promises to reshape employment markets COMPANY: Degreed TRANSACTION: Fundraising CONSIDERATION: £25.6 million Degreed, which provides career development solutions to professionals, has raised $32 million, at a time when global workforces are set to require re-skilling to meet post-pandemic employment demands. Owl Ventures led the funding round, which brings Degreed’s total funding to date to $182 million.

UK-based ed tech buys parental communication platform COMPANY: Firefly Learning TARGET: SchoolPost TRANSACTION: Acquisition CONSIDERATION: Undisclosed Firefly Learning, a UK-based ed tech, has acquired SchoolPost, which facilitates communication between schools and parental bodies.

Singaporean wealth fund invests €350m in Inspired Education, valuing school group at more than €3bn COMPANY: GIC TARGET: Inspired Education TRANSACTION: Stake purchase CONSIDERATION: £317.1 million GIC, a Singaporean sovereign wealth fund, has invested €350 million in Inspired Education, cashing out private equity group Oakley Capital in a deal that valued the premium private school operator at €3.05 billion. GIC’s investment saw Oakley Capital, one of the first private equity funds to buy into Inspired Education, divest its entire holding in the school group, which caters to more than 50,000 students worldwide.

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EducationInvestor Global • June 2020

FINANCE: DEALS

Private equity-backed Juniper Education expands portfolio as primary schools re-open in UK COMPANY: Juniper Education TARGET: Pupil Asset TRANSACTION: Acquisition CONSIDERATION: Undisclosed Juniper Education, a private equity-backed school services provider, has acquired Pupil Asset, a UK-based management information system provider to 900 UK primary schools

Norway-based ed tech Kahoot! raises $28 million COMPANY: Kahoot!

TRANSACTION: Fundraising CONSIDERATION: £22.4 million Norwegian ed tech Kahoot has reportedly raised $28 million in new funding for its educational gaming platform, which is now worth nearly $1.4 billion. The Oslo-based business, which listed some of its shares on Norway’s Merkur Market last year, raised the sum through a private placement, according to TechCrunch, and raised an additional $62 million selling secondary shares.

China-backed KSI Education acquires UK independent school and nursery COMPANY: KSI Education TARGET: Heathfield Knoll independent school and First Steps Day Nursery TRANSACTION: Acquisition CONSIDERATION: Undisclosed The UK’s KSI Education, which is bankrolled by a Chinese investment firm, has acquired Heathfield Knoll independent school and First Steps Day Nursery in Worcestershire. Listed in Hong Kong, China First Capital is a boutique investment bank and advisory firm.

Deal-hungry LTG issues new shares as it shrugs off Covid-19 and pursues acquisitions COMPANY: Learning Technologies Group TRANSACTION: Share issue London-listed Learning Technologies Group (LTG) will issue new shares to finance further growth as it anticipates a permanent uptick in the use of online education as a result of Covid-19. LTG will issue 64.4 million new ordinary shares priced at 0.375 pence each – equivalent to 9.6% of its issued share capital – in a placement on the AIM stock exchange led by joint book-runners Goldman Sachs and Numis Securities. This will occur on or before 8am on 2 June, 2020, LTG said, highlighting that certain board members including Andrew Brode and Jonathan Satchell, LTG’s chief executive, will collectively contribute around £500,000.

US private equity firm takes stake in digital analytics provider COMPANY: LLR Partners TARGET: TrueLearn TRANSACTION: Acquisition CONSIDERATION: Undisclosed LLR Partners, a private equity firm, has invested in TrueLearn, a provider of online test preparation and data analytics to education, training and healthcare institutions.

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FINANCE: DEALS

Maple Leaf to buy Canadian International School for £386m as it bolsters overseas presence COMPANY: Maple Leaf Educational Systems TARGET: Canadian International School TRANSACTION: Acquisition CONSIDERATION: £386 million Maple Leaf Educational Systems will acquire the Canadian International School (CIS) in Singapore for S$680 million (£386 million).

MasterClass raises $100m as millions sit at home looking to learn new skills COMPANY: MasterClass TRANSACTION: Fundraising CONSIDERATION: £80.6 million MasterClass, a start-up that sells online classes often taught by celebrities, has raised $100 million in a Series E funding round that valued the business in the region of $800 million. The round was led by Fidelity Management & Research Company and saw participation from new investors, including Owl Ventures, 01 Advisors, and existing financiers, such as NEA, IVP, Atomico and NextEquity Partners.

Chegg snaps up maths app in $100m all-cash deal COMPANY: Mathway TRANSACTION: Acquisition CONSIDERATION: £80.6 million Chegg, a New York-listed ed tech company, has acquired Mathway, an educational mobile app with subscribers in around 100 countries, for $100 million in an all-cash deal.

MyTutor raises £4m as firm picked to provide catch-up tuition under £1bn state scheme COMPANY: MyTutor TRANSACTION: Fundraising CONSIDERATION: £4 million UK-based ed tech MyTutor has raised £4 million of new funding after seeing demand for its tuition platform “skyrocket” since Covid-19-linked lockdown began in mid-March. Existing investor Mobeus Equity Partners led the round of investment in MyTutor, which offers one-to-one interactive tuition to secondary school pupils.

Saudi ed tech Noon Academy nets $13m in oversubscribed round after doubling users since pandemic began COMPANY: Noon Academy TRANSACTION: Fundraising CONSIDERATION: £10.38 million Saudi Arabia-based ed tech Noon Academy, which claims to be the fastest-growing platform of its kind in the Middle East and North Africa, has raised $13 million in a Pre-Series B round. The round was led by STV, which co-led Noon’s $8.6 million Series A around a year ago.

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EducationInvestor Global • June 2020

FINANCE: DEALS

Buyout house grows education portfolio with purchase of veterinary training provider COMPANY: RJD Partners TARGET: Improve International TRANSACTION: Management buyout CONSIDERATION: Undisclosed UK-based private equity firm RJD Partners has bankrolled a management buyout of Improve International, a provider of training and professional development to veterinarians.

Quizlet reaches unicorn status after raising $30m in Series C round COMPANY: Quizlet TRANSACTION: Fundraising CONSIDERATION: ÂŁ24 million Quizlet, a virtual flashcard platform, has reached unicorn status after raising $30 million in a Series C funding round led by General Atlantic that valued the business at around $1 billion.

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EducationInvestor Global • June 2020

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November/December 2019 Volume 18 Number 6

NURSERY MANAGEMENT TODAY

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