PEs pump in $140 million in education since Jan 2010

PEs pump in $140 million in education since Jan 2010-Indicators-Economy-News-The Economic Times

19 May 2010, 0710 hrs IST,Dibyajyoti Chatterjee,ET Bureau
MUMBAI: Education has emerged one of the most lucrative sectors in India, making private equity investors line up in big numbers to the $80-billion plus industry.

Numbers crunched by education-focused private equity fund Kaizen Management Advisors show that venture capitalists and private equity players have pumped in excess of $140 million so far this year, 50% more than what they invested in the whole of 2009.

“We feel the education sector offers tremendous growth potential and is poised for rapid growth in the next few years,” says Ramesh Venkat, chief executive of Reliance Equity Advisors, a private equity arm of Reliance Capital, which entered the segment a few months ago by investing about Rs 100 crore in Pathways World School, a primary and higher secondary school.

The total VC/PE investment into the sector is expected to be close to $300 million this year, says Sandeep Aneja, managing director of Kaizen Management Advisors. Dhanraj Bhagat, partner at research firm Grant Thornton, says investments into education will grow 40-50 % every year.

There are about 25 PE/VC players in the market actively looking for good deals, and about ten deals have been done in the last few months.

Last week US-based VC firm Foundation Capital made two back-to-back investments—Rs 31 crore in Tree House Education , a company that operates in the preschool and K-12 category, and Rs 20 crore in Aspire Human Capital Management, a Gurgaon-based employability enhancing firm.

“We are interested in investing in large markets which have scale,” says Ashu Garg, partner , Foundation Capital. “It is estimated that about 70 million young Indians suffer from employability skill mismatch,” he adds.

Lack of regulation in K-12 (kindergarten to class XII) segment and supplementary education has made education attractive for investors. "Sectors such as vocational training, supplementary education, preschools , ICT and content are appealing as these are relatively immune from regulatory uncertainty," says Raja Parthasarathy, managing director, IDFC Private Equity.

Matrix Partners India too has invested Rs 59 crore in Tree House in two tranches—Rs 50 crore in 2008 and Rs 9 crore this month. Rajesh Bhatia, chairman and managing director of Tree House Education, declined to reveal the stake of PE firms, but said the promoters have more than 51% stake in the company.

Tree House runs 135 pre-schools across the country and has expanded in the K-12 segment in the last 18 months. It runs the schools under management contract. The pre-school segment is worth $2 billion but is growing at an annual rate of 40-45 %, according to Rishi Navani, co-founder and managing director of Matrix Partners.

Matrix Partners last year invested Rs 100 crore in FIITJEE, a coaching institute focused on training for IIT entrance exam. The engineering coaching business market is worth Rs 10,000 crore, said Mr Navani.

The education sector began heating up in 2005. Although the deal sizes in the sector are much smaller compared to sectors such as infrastructure, the PE appetite for the industry increased rapidly. Perhaps the biggest deal till recently was IDFC PE's Rs 135-crore investment in Manipal Education in September 2006.

It was surpassed this February when Manipal Education raised a second round of funding of more than Rs 190 crore ($43 million) from Premji Invest.

The most active segments in the industry are education technologies and test preparation segments, which have attracted some big money since 2008.