March 2017

ACT THINK THINK POINT VIEW OF

in Southeastin is booming Southeast Asia's demand for Investing Private in Education 2 THINK ACT Private Education in Southeast Asia Together with Healthcare and Retail, Education is one of the most appealing sectors to houses in Southeast Asia.

Education poses an interesting challenge globally – it serves to and built them into strong brands, such as Tenby schools and provide knowledge and skills to children in a context of ev- Asia Pacific University. er-changing technologies and work environment. This may in- clude skillsets for jobs that might not even exist in a few years. GROW A NICHE FRANCHISE The economic and population growth in Southeast Asia has Advent acquired the Learning Lab, a -based tuition center spurred the growth of private education, as parents aspire for their with eight locations, which aims to complement formal education children to attain an even better standard of living. Education is in the kindergarten, primary and secondary education segments. viewed as essential, to attain this success. While wealthy families usually sent children to best education providers abroad, they are LEVERAGE GLOBAL ASSETS TO EXPAND increasingly relying on local or regional brands, offering Western In 2008, Baring Private Equity acquired Nord Anglia, an interna- standards of education, innovative approaches to education or tional operator of premium schools and has since grown across the complementary components to the standard curriculum (e.g. world, including campuses in Singapore, Thailand and Vietnam. Montessori, tuition classes, language learning). What is more interesting here are the traditional patterns we As a result, private sector education has become quite sophis- do not see: regional cross-border expansion of local education ticated over the past 5 to 10 years. It was an estimated USD 90– brands, broadening of education offering or operational- effi 110 billion in 2016, while the overall education sector is expected ciency gains (e.g. through outsourcing of noncore businesses). to grow 5-6% p.a., till 2020. We believe certain unique factors to Southeast Asia contrib- ute to explaining this: language heterogeneity; diversity of curric- SO WHAT SHOULD INVESTORS DO? ulum and national exams expectations (and hence, student rank- Despite good results and expected growth, early success stories ings); and perceived quality gaps of national education systems. in Singapore and Malaysia seem hard to replicate in other mar- Additionally, regulatory hurdles on investment (especially in kets across the region. While mainstream options are available, Indonesia, where foreign ownership is limited and for- profit we believe investors should shy from those and focus on lim- models are only authorized for informal education) and high ited niches and countries, to position themselves for mid-term market fragmentation also limit opportunities to invest. value creation. It is therefore not surprising that most activity in the region We analyzed the approaches taken by private equity houses happened in Singapore and Malaysia, and that local private eq- such as Advent, Bain Capital, Baring Private Equity Asia, CDH, uity firms also explored as a key investment area over Creador, Ekuinas, Navis etc. in extracting value and observed the the past few years, due to its stable and transparent regulations, following main three patterns: which are conducive for private participation.

BUY AND BUILD IN ONE COUNTRY THE PATH GOING FORWARD Ekuinas acquired institutions in the kindergarten, primary, sec- There is a need to target unaddressed niches and leverage ondary and tertiary education segments in Malaysia since 2011 technologies for success. Nevertheless, we believe certain THINK ACT 3 Private Education in Southeast Asia

segments that are off the beaten secondary and tertiary tracks, A which remain appealing to investors as they are not as affected SELECTED DEALS IN THE EDUCATION SECTOR IN by limitations mentioned. SOUTHEAST ASIA TUTORING AND AFTER-SCHOOL ACTIVITIES What investors liked Limited competition with existing public systems and interest by parents to complement traditional education, is set to con- Thailand tribute to the growth of this segment. 2014 Minor Food Group PLC; S&P Syndicate Public Company Limited invested in MSC Thai VOCATIONAL Culinary School This segment is spurred by demand to develop skills for an ev- 2014 The Abraaj Group purchased stakes in KPN MUSIC er-globalizing workforce, given technological changes and Co., Ltd. and KPN Academy Co., Ltd. broader moves towards services-based economies. 2015 Metaliq Growth Partners acquired SkillLane Education Co., Ltd. LANGUAGE INSTITUTIONS English remains the language of business in many parts of Singapore Southeast Asia; that said, it may not necessarily be taught in 2011 Baring Private Equity Asia acquired schools, or even at level suitable for commerce. Additionally, PSB Academy 2014 Advent International acquired The Learning Lab for some parents wish for their children to learn a third or fourth an estimated USD 300 million language, to complement their mother tongue and English - 2016 Busy Bees purchased 48 nurseries in Singapore language institutions fill these gaps. 2017 CDH investments invested USD 35 million We also believe that emerging e-learning technologies in Ednovation (e.g., peer-to-peer learning, ICT rollout, etc.) reinforce the growth potential of these niches, with increased scalability Malaysia and reduced capital needs, compared to traditional brick- 2012 Ekuinas acquired 90% of Cosmopoint Group for and-mortar models. USD 102 million 2015 SMRT Holdings Berhad invested USD 13.4 million THE NEW FRONTIERS: INVESTING BEYOND SINGAPORE in ASIAMET Education Group Berhad AND MALAYSIA 2016 Busy Bees purchased 12 nurseries in Malaysia Singapore and Malaysia still offer investment opportunities, ILMU education group acquired APIIT, Tenby and Unitar Capital but not necessarily sizeable or attractive enough on standalone basis to justify interest of larger private equity houses in the region. We see two possible pathways of private equity partici- Indonesia pation in Southeast Asia for the next 12-18 months. 2007 Navis Capital acquired 75% stake in PT Efficient Firstly, leveraging global, Singapore or Malaysia assets to English Services, operator of Wall Street Institute in Indonesia for USD 1.5 million expand to other Southeast Asia markets. For those private eq- 2012 Navis Capital sold its stakes in PT Efficient English uity firms with existing assets, the key will be to determine rel- Services to Pearson for USD 16.3 million evant market entry strategies and successfully execute on 2016 CyberAgent Ventures, Inc.; PT UGM Samator growth plans. Diversification to other segments will be possi- Education; Village Capital; Pearson Affordable ble, but more challenging to execute. Learning Fund; invested in HarukaEdu for Secondly, growing a niche franchise in Indonesia, Vietnam, USD 2.2 million the Philippines or Thailand. For private equity investors with- out existing assets, the sourcing and assessment of their pilot Philippines investment will be crucial, as well as the execution of a solid 2015 Phinma Corporation bought a stake worth USD organic growth plan. In the mid- term, this can be supported by 48.7 million in Southwestern University Phinma targeted acquisitions, likely in the same market. Expansion to Education Holdings invested USD 76.2 million in University Of Pangasinan, University of Iloilo and other markets should also be taken into consideration (includ- Southwestern University ing Myanmar) as a mid- to long-term upside. 2016 FERN Realty Corporation invested USD 52,500 in The Far Eastern University CONCLUSION Further liberalization, integration and consolidation of the Southeast Asia education market are likely to happen, however with uncertain timelines. Investors should focus on tangible value creation levers on actionable niches, while creating opportunities to tap further into upsides, either by allowing longer-than-usual Source: Roland Berger holding periods or by developing ad-hoc exit strategies. Publisher Links&Likes ROLAND BERGER PTE LTD. ORDER AND DOWNLOAD 50 Collyer Quay www.rolandberger.com #10-02 OUE Bayfront Singapore 049321 STAY TUNED www.twitter.com/RolandBerger

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THOMAS KLOTZ ABHISHEK SRIVASTAVA Managing Partner, Southeast Asia Project Manager

[email protected] [email protected]

ARNAUD DELAMARE STEFANO BURY Project Manager, Head of SEA Investor Senior Consultant Support practice [email protected] [email protected]

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