This document was created before Parthenon joined Ernst & Young LLP on August 29, 2014, and has not been updated to reflect the combination. Investing in the Sector Strategies for Success in Emerging Markets Prepared by The Parthenon Group for Super Return Emerging Markets, June 2014, Amsterdam
Parthenon s Practice completes more than 150 projects a year in over 80 countries Sector Projects Completed by Parthenon Parthenon Offices
Private education is a $1T market; growth is faster in emerging private education markets 100% 80 60 40 20 0 ~$470B Canada UnitedStates North America Affluence and English Accreditation & International Students ~$320B Japan Thailand Vietnam Malaysia Australia Korea China East Asia & Pacific Deregulation and International Students ~$160B Others Austria Sl ovak Republ i c Kazakhstan Netherlands Poland Switzerland Spain Italy France Russia Germany United Kingdom Europe & Central Asia ~$90B~$55B Others Bolivia Ecuador Jamaica Honduras Peru Venezuela Argentina Chile Mexico Colombia Brazil Latin America & Caribbean Kuwait Qatar Algeria Iraq Lebanon Israel UAE Iran Saudi Arabia Egypt South Asia India Middle East & North Africa ~$30B $10B Total = $1.1T Beni n Demographics, Affluence & Lack of Public Sector >25% 15% 25% 5% 15% <5% Sub-Saharan Africa Affluence & Deregulations; non-traditional learners
Globally, education markets are fueled primarily by rising household wealth Distribution of Household Income 90 s 00 s 10 s Can Afford Quality 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
The last decade has witnessed an exponential increase in investor participation Completed M&A Activity in Emerging Private Markets, 2000-2013 1,000 800 600 400 200 0 n=101 MENA Lat Am ANZ Europe Asi a Pacific 2002-2004 n=349 MENA Africa LatAm SE Asia ANZ India Europe Asia Pacific 2005-2007 n=637 MENA Africa LatAm SE Asia ANZ India Europe Asia Pacific 2008-2010 n=788 MENA LatAm SE Asia ANZ India Europe Asia Pacific 2011-2013 Africa
Why Invest in? 1 2 3 4 5 Long-Term Revenue Visibility High Barriers To Entry Demand Greater than Supply Prices Rising Higher Than Inflation Negative Working Capital Higher K-12 Transnational English Language Learning ~ ~ ~ Vocational ~ ~ ~ ~ Evaluate assets on the strength of their attributes
Common Challenges to Investing in Fragmented Markets Sparse Information Regulations Small Assets Time-Consuming Process
Invest in education platforms to build scale businesses and generate returns Annual Turnover of Select Companies, FY 2013 5,000 Sterling Partners $5B 1,500 1,000 Revenue Advent International $850M Patria $768M 500 GP Investments $439M BregalCapital Barings $400M $400M 0 Laureate Kroton Anhanguera Estacio Cognita Nord Anglia
platforms deliver superior returns to investors EBITDA Multiple, Global Companies, 2013 30X ~28X ~22X 20 10 Valuation Multiple ~18X ~18X ~18X ~15X ~14X Typical Valuation Size of Standalone Assets 0 G8 AdTech Group Kroton Estacio Anhanguera Laureate Nord Anglia
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 2. Scarcity of Scale Assets 3. Premium for Entry 3. Cost Rationalization may not yield high returns
Investments require systematic approaches to building scale Expert Team Niche Segments Pipeline Development Post- Acquisition Value Creation Plan 70% M&A 30% i.e., Transnational, International Schools Investment Hypothesis Top-Line Driven
About The Parthenon Group s Practice The Parthenon Group is a leading advisory firm focused on strategy consulting, with offices in Boston, London, Mumbai, San Francisco, Shanghai, and Singapore. Parthenon has served as an advisor to the education sector since 1991. Parthenon s 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, Parthenon invests significantly in dedicated management and team resources to ensure that our global expertise extends across public sector and non-profit education providers, foundations, forprofit companies and service providers, and investors. Parthenon also 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. Learn more about our practice at www.parthenon.com/industries/education Abhinav Mital Partner abhinavm@parthenon.sg +65 6922 9462 Follow Us for Regular Updates Facebook www.facebook.com/parthenongroup LinkedIn www.linkedin.com/company/the-parthenon-group Twitter @Parthenon_Group WWW.PARTHENON.COM