Private equity firms eye India's education sector after healthcare success
What's the story
Private equity (PE) firms are now targeting India's school education sector, using innovative investment strategies. The move comes after their success in the healthcare sector, where major private hospital chains have received PE funding. Notable examples include HCG and Manipal Hospitals, which have attracted investments from global investors KKR and TPG, respectively.
Market potential
PE investments in schools
Just like hospitals, schools have been seen as philanthropic activities, not profit-making ventures. However, the PE interest in this sector is growing.
KKR has invested in Lighthouse Learning, which owns several school brands, including Billabong High and Euro School.
Blackstone has also invested in Jayshree Periwal International School, while Kedaara Capital has backed K12 Techno Services that runs Orchids schools.
Investment approach
Investment through service, management, and infrastructure companies
PE firms are investing in the education sector through service, management, and infrastructure companies.
These companies provide outsourced services to non-profit school trusts.
However, they have to navigate several layers of government compliance before a single class can start.
This includes state-level compliance for operational commencement and central compliance under the Right to Education Act.
Compliance hurdles
Regulatory challenges
Several states cap how much fees a school can raise each year.
Private schools are also required to set aside a share of seats for students from economically weaker sections at reduced or no fees.
These rules are aimed at keeping education affordable, but they also affect the earnings of both the school and the company servicing it.
Growth potential
Potential for growth and professionalism
PE capital has helped schools expand their reach to more children and cities.
For instance, Jayshree Periwal International School in Jaipur has three large campuses and five kindergartens.
Despite the regulatory challenges, many believe that the entry of PE into education can bring professionalism and scale, especially if they can build brands that cater to tier-2 cities where people want better offerings.