India has the largest enrolments in K-12 schools globally with more than 276 Million students attending classes from Pre-Primary to Secondary. It is also one of the very few markets which have had a solid growth in enrolment numbers (2.4%) year on year. With the advent of Information Technology and Services Economy a large population of the country realizes that Education is their way to success and hence is willing to spend money on education. Today Education takes the largest share of non-food expenditure in an urban Indian Household.
Despite such attractive macros the number of scaled private K-12 businesses in India is dismally low. Out of the more than 1500 companies listed with the National Stock Exchange less than 10 or so would be directly in the education space and even fewer in the K-12 space. This state of private K-12 businesses in India can be attributed to the absence of quality growth capital.
K-12 investment is typically a long gestation investment. Schools take minimum 5-7 years to reach scale and to start generating returns. There is not much patient capital available in the market. Secondly, Private growth capital requires clear and multiple exit possibilities. The primary and secondary market for K-12 Business is not deep enough. In a few cases where investments were made by PE firms, the promoters had to leverage the business to buyout the investors. Finally the regulatory environment has had the biggest overhang on the sector. Schools get regulated by the affiliating board, state and central government complying with these regulations is not easy.
However all of this may be just about to change. The recent partnership between Nord Anglia Education (NaE) and People Combine could be the turning point that the sector might have been waiting for. You can read more about this partnership https://bit.ly/2U11a3m
Fear Of Missing Out: Globally there are atleast 10 K-12 chains which have rapidly grown over the last decade or so. Key amongst them would be Nord Anglia Education, Cognita, Inspired Education, and International School Partnerships apart from the education platforms of various large sized PE funds like CDC. All of them have been closely tracking Indian K-12 space for some time but didn’t have the courage to cross the line. With NaE taking the plunge more will follow to ensure they don’t miss out on the opportunity that this massively attractive macro provides.
Comfort with Regulation: Most of the global K-12 Operators have presence in diverse set of geographies including some which are similar or more stringent than India in terms of regulations in the sector. It was always a matter of getting comfortable with the sector. Unfortunately the lack of precedence which is the biggest comforting factor had been missing and lawyers and other consultants have been treading very cautiously in their advice. This will change going forward.
Availability of Growth Capital: One of the biggest impediments for growth has been the lack of capital from PE / VC funds for the sector. With the heightened level of M&A activity which might hit the sector soon, thus creating a clear exit mechanism for funds, the availability of growth capital will become relatively easy.
In summary K-12 sector has starved for capital for a long time despite the macro being extremely attractive. All of these might be just about to change with investors getting more comfortable with exit options and the regulatory framework. Somebody has finally belled the cat!