Trends in education investment in India

Trends in education investment in India

The Indian education system caters to a population of 600 million people in the 0-30 years' age group. The government spends almost 3.5% of India's GDP on this sector, which is comparable to most developed countries and makes it one of the most capitalised sectors in the country.

The private education sector, pegged at over US$40 billion, has been growing strongly at an annual rate of over 15 % and has seen the advent of innovative business models in various formal and non-formal segments of the education sector.

With almost US$1 billion invested in education over the past three years through private equity, venture capital, strategic investments and debt, the education sector is expected to continue to grow strongly. Though there are headwinds on the extent of regulation in the field and restrictive legislature, the non-formal segment is becoming an increasingly popular investment.

Capital flows into the sector

Between 2010-13, 114 individual companies in the education sector have raised equity or debt capital in around 130 transactions, aggregating over US$980m* for their growth and expansion plans.

Among the sub-sectors, the formal segments of K-12 and higher education continue to dominate investor interest, with circa 68 % of the investment flows. Interest from venture capitalists has increased in the past few years due to greater comfort with segments such as vocational training and content services, but private equity interest has waned due to a slower scale-up of education companies than anticipated (especially in asset-intensive segments such as K-12) as well as a depressed market environment.

Across these investments we have seen a few investing trends emerge:

Trend one: Higher activity in the venture capital and angel investment space

Over the past three years the sector has seen increasing interest from the venture capital segment, with the number of transactions rising from seven in 2010 to 18 in 2012 with an average investment size of US$3-4 million.

One of the driving factors for this trend is likely to be the high levels of late stage and M&A activity in the segment providing venture capital investors with comfort on exit and returns. Following the success of larger players in the non-formal segment, such as core projects & technologies and next education, venture capitalists have focused more on non-formal business models such as vocational training and content services for K-12 and higher education.

Trend two: Slow down in private equity investment

The number of investments made by private equity players between 2010 and 2013 fell from 18 to 13, indicating that investors are waiting and watching the segment before taking large bets. Average ticket sizes invested by private equity players have been in the range of US$10-15 million.

The fluctuating policy environment coupled with the below-average performance of some of the listed stocks in the sector has amplified concerns on exits for these investors. Though international strategic players have been active in this segment, many are still waiting for further clarity on the regulatory environment in K-12 and higher education before entering India.

However, transactions such as Pearson's acquisition of TutorVista and the exit by private equity players from Manipal Education are viewed as positive trends, which will provide some comfort to investors going forward.

Trend three: Formal segments continue to be popular despite regulatory overhang

Only a trust/society or non-profit entity can run a school. The K-12 segment has suffered from significant regulatory overhang in India due to this requirement. Traditional curriculums such as CBSE and ICSE require schools to have such non-profit structures in place to provide accreditation. This has led to the evolution of innovative business structures for K-12 companies, and has spawned innovative business models such as school operations management services and infrastructure management.

Despite this, investor interest in this segment has been fairly high, given the capital intensive nature of business, and potential for scale. Out of the 47 private equity transactions in the education segment, 18 of them were in the K-12 and higher education segments, absorbing around 64% of the US$ 375m invested. On the K-12 side, while most of these investments have been made in private school chains looking at pan-India expansion, investors have also bet on companies with purely service-oriented models such as Maharana Infrastructure and Professional Services, which provides infrastructure development and consultancy for educational institutions. In higher education, investors have found few scalable models in which to invest, with multiple rounds of investments made in three-four companies.

Trend four: Mergers and acquisition are not limited to large size companies; smaller companies are also looking at inorganic expansion

With over 28 transactions in the past three years, M&A activity in the sector has been robust. Companies which attained early success such as Manipal Education and Educomp Solutions grew both organically and inorganically, laying a clear path for other domestic companies. Vocational training and content services saw high levels of M&A activity especially at smaller ticket sizes, where growth stage companies found it easier to grow through acquiring either products which have created a loyal clientele or acquiring assets such as centres in geographies in which they are not present. Companies have spent an average of US$3-5 million in acquiring targets in early stage M&A. This is a positive trend for investors since this will enable companies to scale faster.


  • Higher activity in the venture capital and angel space in education evidenced by median shift towards lower tickets.
  • Despite the regulatory overhang, K-12 continues to attract high levels of investment; other popular segments are higher education and vocational training.
  • Almost US$1bn of investments in the segment, but private equity confidence seems low.

Kamalika Bhattacharya and Amritraj Thakur are Associate Vice Presidents in the investment banking team at Intellecap, which helps build and scale profitable and sustainable enterprises dedicated to social and environmental change.

The above article was published in India Inc′s Print edition of India Investment Journal launched on October 2013 in conjunction with Education Investment Conclave.
Click here to view photos of Education Investment Conclave 2013
Click here to read the quotes from India Education Investment Conclave Participants

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