PE appetite for education firms soars

Over 80 per cent of private equity and venture capital investors plan to invest in education companies during the next 6-8 months, according to Venture Intelligence in its newly released ‘Private Equity Pulse - Education’ report .

With an estimated $40 billion market for private institutions and a compound annual growth rate (CAGR) of 8.6 per cent, it is no surprise that PE and VC investors are looking to ramp up the 30 investments (worth over $300 million) they have already made in education-related companies, the report indicates.

“In the current uncertain economic environment the attractive and predictable rates of return of the education industry is serving as a magnet for PE investors,” points out Arun Natarajan, CEO of Venture Intelligence. “In fact, in another poll which we had done in 2008-end among PE investors, education received three times as many votes as the next favourite sector in terms of attractiveness for investments in 2009,” Natarajan added.

Despite the overall optimism, investors have their own set of concerns, the topmost being the regulatory uncertainty surrounding “for profit” ventures in the K-12 and higher education segments, and the lack of scaleability of ventures in “non formal” segments. Over half the fund managers surveyed by Venture Intelligence felt regulatory hurdles are a significant deterrent to the free flow of investments into the education industry. The lack of quality teachers and political interference also figure in the list of concerns.

Entrepreneurs, by their very nature, are optimistic and resourceful. And those interviewed in the PE Pulse report seem confident the constraints facing their industry can be overcome.

For instance, Vinay Pasricha of Wigan & Leigh College (India), a vocational education firm that has raised Private Equity funding, feels there is enough scope to create scale in the unregulated segments of the industry - both within and outside India.

“Tell me a sector where you do not face regulatory uncertainty,” he asks adding, “Education, apart from healthcare, is the only mass growth opportunity that will continue to flourish In any economic downturn.”