PRIVATE EQUITY IN EDUCATION

Private equity (PE)/venture capital (VC) funds have infused $804.29 million between 2006 and 2012 in education. But PE is largely confined to non-formal education segments like vocational education and coaching centres, as it is an unregulated sector
| Investments in the education sector have not taken off well due to prevailing regulations that require the entity setting up a school/college with a non-profit character | Moreover, any surplus funds generated in the process of running formal schools have to be ploughed back into the same institution and no dividends can be distributed | Certain structures have emerged to overcome these difficulties. In certain cases, the company creates a trust (a not-for-profit body) that runs the educational institute | It creates a subsidiary that supplies educational services, infrastructure to the trust in lieu of fees. The trust has teachers on its payrolls and collects fees from students | Education sector is less sensitive to economic cycles, which makes it attractive. PE investors expect an average rate of return of 200 per cent in three to five years PE/VC INVESTMENTS IN EDUCATION
Year Deal volume Deal value ($ mn)

2006 2007 2008 2009 2010 2011 2012

7 18 12 13 25 21 8

95.9 123.1 74.4 165.4 163.6 136.1 45.9

Data for 2006 to 2012 year-to-date

THE MARKET OPPORTUNITY

Formal education (Regulated market)
| K-12- $32 bn | Higher education*- $5 bn | University professional education- $8 bn
* Graduation & postgraduation

Parallel education
| | | |

(Unregulated market)

Pre-school (1.5 to 4 years) $1 bn Coaching $8 bn Vocational $3.8 bn Online tutorial enterprises $0.3 bn

| Multimedia & smart class segment $0.5 bn

TOP FIVE DEALS

Target Buyer Deal value ($ mn)

TOP FIVE EXITS

Target Seller Exit type Exit value ($ mn)

Manipal Universal Learning

IDFC Private Equity , Capital International Global Emerging Markets Private Equity Orient Global Education Fund PI Opportunities Fund I

67.31 51.00 43.32 37.00 32.46

TutorVista Lightspeed M&A Global Venture, Sequoia Capital NIIT Intel Capital Secondary sale Open market Open market Open market

127.0

NIIT Manipal Universal Learning

51.0 16.9 7.4 2.8

Educomp Solutions Educomp Solutions NIIT

Quantum Fund

IL&FS Education & India Equity Partners Technology Services Fund I People Combine Ascent India Fund III

Gaja Capital Partners Elephant Capital Fund

Data for 2006 to 2012 year-to-date

Data for 2006 to 2012 year-to-date

CHALLENGES thatprivate equityfaces in entering the formal Indian education sector

| Schools and colleges are required to be non-profit organisation | Institutions required to be certified by or affiliated to regulating bodies such as AICTE | Restrictions on foreign investments in higher education
Compiled by Disha Kanwar Source: Franchise India Education Report, 2012 & VCCEdge