Investing in Asian Education: Opportunities and Challenges

Transcription

1 Investing in Asian Education: Opportunities and Challenges Prepared for the HKVCA- MasterClass Hong Kong December 2014

2 Globally, private education is a $1.3T market. Asia accounts for 40% of this spend Private Education Market Size in Asia, By Region, % 80 Private Education Market Size, By Continent, 2012 $1.3T ANZ Africa Latin America Europe 100% 80 BruneiMongol Ki Fiji ri bat i Hong Kong Darussal i a SAR am Japan Korea Market Saturation and Regulatory Pressures Singapore Indonesia Philippines Jordan Yemen Kuwait Qatar Iraq Sri Lanka Bangladesh Pakistan Total = $470B 60 N. America 60 Thailand Lebanon Israel Internationalization UAE China Vietnam India Iran >25% 20 Asia 20 Malaysia Saudi Arabia 15% 25% 5% 15% 0 Market Size 0 Asia Pac SE Asia Middle East South Asia <5% Affluence and English Affluence, English and Study Abroad 2

3 Globally education markets are fueled, primarily, by rising household wealth Distribution of Household Income 90 s 00 s 10 s Can Afford Quality Education Percent of Households As income rises, the number of families able to afford private education increases in a greater proportion than household income Household Income Threshold For Private Schooling As average household income rises, the number of households above the private education affordability threshold rises more quickly 3

4 The last decade has witnessed an exponential increase in investor participation in Asian Education Completed M&A Activity in Emerging Private Education Markets, n= n= n=191 Asia Asia 100 Asia 0 n=18 Asia Global Deals Totals

5 Education segments vary widely in character Long-Term Revenue Visibility High Barriers to Entry Demand Greater than Supply Prices Rising Higher Than Inflation Negative Working Capital Higher Education K-12 Transnational Education ~ English Language Learning ~ ~ ~ Vocational Education ~ ~ ~ ~ Publishing ~ ~ ~ ~ ~ Evaluate assets on the strength of their attributes 5

6 Common Challenges to Investing in Education Fragmented Markets Small Assets Sparse Information Time- Consuming Process Regulations 6

7 Asset scale remains a key challenge for investors looking at education in Southeast Asia Market Size of Assets by Revenue Size in Target SEA Countries, % ~$10B ~$3B 80 $25M-$50M 60 0-$25M $25M-$50M >$50M >$50M 0 Market Size Market Size of Assets with Revenue Greater than $25M 7

8 Invest in education platforms to build scale businesses and generate returns Annual Turnover of Select Education Companies, FY 2013 Sterling Partners $5B $5B Presence in Asia Revenue Advent International $850M Patria $768M GP Investments $439M Bregal Capital Barings $400M $400M 0 Laureate Kroton Educational Anhanguera Estacio Cognita Nord Anglia 8

9 Education platforms deliver superior returns to investors EBITDA Multiple, Global Education Companies, X ~28X ~22X Valuation Multiple ~18X ~18X ~18X ~15X ~14X Typical Valuation Size of Standalone Education Assets 0 G8 Education AdTech Group Kroton Estacio Anhanguera Laureate Nord Anglia 9

10 What are the drivers of value creation? 1 Business 2 Financial 1. Top-Line Initiatives a) Pricing b) Student Acquisition 2. Operational Best Practices 1. 5 Characteristics of Education 2. Scarcity of Scale Assets 3. Premium for Entry 3. Cost Rationalization May Not Yield High Returns 10

11 Investments require systematic approaches to building scale Expert Team Niche Segments Pipeline Development Post-Acquisition Value Creation Plan 70% M&A 30% Education i.e., Transnational Education, International Schools Investment Hypothesis Top-Line Driven 11

12 About and the Education practice About and EY combined with Ernst & Young LLP on August 29, is a leading advisory organization focused on strategy consulting. We are committed to combining our unconventional thinking with our clients smarts to deliver actionable strategies. In today s complex business landscape, creativity has become a necessary ingredient for sustained success. Together with EY, we have an ideal balance of strengths specialized expertise with broad executional capabilities, intimate client relationships with larger networks of support, and proven processes along with a progressive spirit to unlock opportunity for our clients, amplify the impact of our strategies, and make the global partner of choice for business leaders. About s Education practice has served as an advisor to the education sector since our inception in Our Education practice the first of its kind across management consulting firms has an explicit mission and vision to be the leading strategy advisor to the global education industry. To achieve this, we invest significantly in dedicated management and team resources to ensure that our global expertise extends across public sector and non-profit education providers, foundations, for-profit companies and service providers, and investors. has deep experience and a track record of consistent success in working closely with universities, colleges, states, districts, and leading educational reform and service organizations across the globe. Follow Us for Regular Updates Facebook LinkedIn 12

13 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. and -EY refer to the combined group of and EY professionals providing strategy services worldwide. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US Ernst & Young LLP. All Rights Reserved. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com