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July 12, 2011

PE firms continue to be bullish on Education investments

As the only industry in which investments continued to growth through the 2008-09 downturn, Private Equity & Venture Capital investors continue to be bullish about investing in Education companies, reveals a new report – the second edition of “Private Equity Pulse on Education” - from research firm Venture Intelligence, the leading provider of data and analysis on PE/VC and M&A activity in India,.

Nitish Poddar and Aneesh Vijayakar of KPMG set the tone for the report in an article highlighting the opportunities and challenges facing Private Equity investors in Education. They point out how the demand-supply gap, higher spending by consumers, superior quality perception of private sector offerings and government reforms, are set to drive growth of the industry. They highlight regulatory hurdles, need for complex structuring, lack of exit routes and shortage of management & faculty talent as key constraints for making investments. According to data from Venture Intelligence, PE/VC investors have already invested $93 million across 10 Education companies so far in 2011 led by the Rs.100 crore ($22 million) investment in vocational training and placement firm Teamlease Services.

In a survey conducted for the report among Private Equity & Venture Capital firms, the investors chose Vocational Education and Test Preparation companies as among their favourite sectors within the industry. These were followed closely by Educational Technology and Tutorial firms. Investors participating in the survey were split almost evenly on the question of investing in highly regulated sectors. The optimistic investors feel that K-12 especially, given the supply-demand gap, is very attractive in terms of scalability of business potential and its ability to absorb significant amounts of capital. The naysayers feel the lack of certainty in the government’s approach to de-regulation poses too great a risk to PE investments in these sectors.

Karan Khemka of The Parthenon Group emphasizes how, given the scale and logistical complexity of the market, K-12 businesses need solid planning targeting geographies and price points to support rapid and profitable growth. He advises investors to choose their markets cautiously and after careful data-driven analysis. Abhishek Sharman of India Equity Partners makes a detailed case for why the timing is now appropriate to create businesses with large scale in the vocational segment. He also highlights the key factors that will determine success of such ventures.

In their article, Siddharth Raja, Neela Badami and Sindhushri Badarinath of law firm Narasappa, Doraswamy and Raja, provide an overview of the constitutional and regulatory frameworks governing the sector and the challenges they throw up for PE investments. The authors also outline the innovative structures being used by investors to work around the regulatory bottlenecks in the formal education sectors.

The report can be downloaded from