Business Services Sector Comment – Education: Private Equity continues to dominate – November 2017

Thwarted by a shortage of high quality assets in the UK education market, deal activity has remained robust but at a lower level for the last 3 years. However, the recent sale of QA to CVC and TA Associates’ investment in Inspired, is indicative of a buoyant private equity market and the appetite to deploy capital in the sector.

In a pre-emptive bid, CVC Capital Partners acquired QA, the UK’s leading provider of IT education and skills. The business, which runs 1,500 courses at learning centres throughout the UK, is well placed to help address the skills shortages particularly in areas such as big data and cyber security. CVC is understood to have paid £700m (c.€797m) for the business, representing an EBITDA multiple of c.14x.

A further illustration is the growth capital investment by TA Associates in Inspired. The group owns schools in Europe, Africa, Latin America and Australia and educates approximately 19,000 students between the ages of 1 and 18. Oakley Capital first invested in the business, financing the launch of Educas who subsequently acquired four schools in South Africa. The group now boasts more than 30 schools and has an EBITDA of c.£45m (c.€51m), making it one of the largest K-12 schools groups in the world.

The appetite for K-12 schools is not just restricted to the UK. The public to private transaction of Hong Kong-based Nord Anglia Education is a further example. The business, which already traded at a premium to its peer group, was taken private for c.18x EBITDA by Canada Pension Plan Investment Board and Baring Private Equity Asia in a $4.3bn (€3.7bn) deal. The premium price raises questions over whether the public markets are able to take a long term perspective on the maturation profile of education assets. The valuation is based on the premise Nord Anglia will grow to owning and operating 100 schools and is able to capitalise on the longer term opportunity in the bilingual market in China. Despite this, it is full steam ahead for competitor GEMS Education’s which is looking to launch a public offering early next year at c.16x EBITDA.

As the education sector continues to evolve so do the geographies and the types of financial investors. The last few years have seen an upsurge in the level of North American private equity groups targeting European education assets, in addition to a growing Asian investor base interested in harnessing the international student opportunity. The sector has also witnessed the introduction of other types of buyers with a longer term investment thesis and not a fund per se but an operating company. For example, family office funded investor ChangedEDU recently completed the purchase of GateWay Education which will complement the acquisitions of US-based Collegewise and Singapore-based Lorna Whiston Schools.

Here at Clearwater International, we very much expect to see private equity continue to dominate the education landscape. The positive market backdrop helps investors build a strong equity story often with the opportunity for buy and build.