JUNE 2011Contents Page No. Executive Summary PE/VC and M&A in Education - What the Data Says What PE/VC Investors Think - Survey Results Private Equity in the Indian Education Sector - Opportunities and Challenges PE Investment in Indian Education Through The FDI Route - Opportunities, Challenges and Innovative Structures Investment Opportunities in the K-12 Sector in India - Myths and Reality Vocational Education - The Time is Nigh! Issues Facing the Education Investments - The Trilegal View Listing of Active Investors in Education Listing of Active Advisory Firms in Education 3 4 10 14 18 23 27 31 33 36 2 Executive Summary 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. Private Equity & Venture Capital investors surveyed by Venture Intelligence for this report 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. As part of their interviews in this report, entrepreneurs behind two Education companies - one PE-backed and another VC-backed – share their experience in tapping this form of capital. Pramod Maheshwari of Career Point Infosystems advises fellow entrepreneurs to treat the typical constraints accompanying PE funding (in terms of financial reporting, MIS, etc.) in a constructive fashion since they “create a foundation for the company to take a big leap”. Uma Ganesh of Global Talent Track points out why it is crucial for entrepreneurs to define their core business model very clearly and to have on board capabilities for “meticulous execution” before approaching VC investors. 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 the 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. In her interview, Kosturi Ghosh of Trilegal throws light on some of the key risks that PE investors should watch out for when making investments in Education companies and how best to mitigate them. 3 Private Equity and M&A in Education What the data shows… PE Investments in Education - By Volume Services to K-12 7% 7% 5% 5% 9% 9% 9% 22% 12% 15% Test Prep Higher Education Vocational E-Learning Online Services K-12 Pre School & Day Care IT Training Others *Period FY08 - FY11 PE Investments in Education - By Value Services to K-12 2% 2% 4% 6% 6% 21% Test Prep Higher Education Vocational E-Learning Online Services 17% 13% K-12 Pre School & Day Care 14% 15% IT Training Others *Period FY08 - FY11 4 PE Investments in Education 200 180 160 140 120 100 80 60 40 20 0 FY08 FY09 FY10 FY11 25 20 15 10 5 0 PE Investments in K-12 Service Providers 60 50 40 7 6 5 4 30 3 20 10 0 FY08 FY09 FY10 FY11 2 1 0 5 . 5 1 0.5 0 FY08 FY09 FY10 FY11 0 PE Investments in Higher Education 70 60 50 40 30 20 10 0 FY08 FY09 FY10 FY11 3.5 1 0.PE Investments in Test Prep Cos 60 50 4.5 3 2.5 2 20 10 1.5 2 1.5 4 3.5 40 30 3 2.5 0 6 . 11 – by Investment Size 7 .PE Investments in Vocational Training 50 45 40 35 30 25 20 15 8 7 6 5 4 3 2 10 5 0 FY08 FY09 FY10 FY11 1 0 Top PE Investments in Education Company Manipal Universal Learning IL&FS Education and Technology Services Excel-soft Technologies ITM Group Everonn Education FIITJEE Sector Distance Learning Education Services E-learning Tertiary & Executive Education Education Services Test Prep Amount (US$M) 43 37 31 24 23 21 Investors PremjiInvest India Equity Partners DE Shaw Navis Capital New Vernon. Others Matrix Partners India Date Feb-10 Jan-10 Apr-08 Jul-09 May-08 Jul-09 Source: Venture Intelligence PE Deal Database. FY08 . FY 08-11 M&A Deals in Education . FY 08-11 6 6 4 FY08 FY09 FY10 FY11 8 .Yearwise 8 8 7 6 5 4 3 2 1 0 *By Volume.Sectorwise Vocational Services to K-12 8% 21% 17% 4% 4% 29% Test Prep Higher Education 17% Pre School & Day Care K-12 Tutorials *By Volume.M&A in Education M&A Deals in Education . 5 50 55 Stake (%) 50 Date May-09 Dec-08 Jul-09 Dec-08 Jun-09 American University of Antigua Manipal Education Group ITM Group Princeton Review – K-12 Education Arm IndiaCan PE Firm(s) Core Projects and Technologies Education Services (K-12) Pearson Vocational Training Biz Source: Venture Intelligence PE Deal Database.11 – by Investment Size 9 .By Type 75% Domestic 8% 17% Outbound Inbound *By Volume. Mother's Pride Acquirer AEZ Group Pre-school University (Medical) Tertiary & Executive Education Sector Amount (US$M) 100 80 24 20 17. FY 08 .M&A in Education M&A Deals in Education . FY 08-11 Top M&A Deals in Education Target Co. 00 8. Investors chose Vocational Education and Test Preparation companies as among their favourite sectors within the industry.00 1.00 How Investors Rated Each Sector 80% 60% 40% 20% 0% 20% 40% 60% Services to Educational Firms K .00 7.12 Education Distance Education Higher Education Test Preparation % Voting 5 or Less Education Technology % Voting more that 5 10 Vocational Education Language Training Day Care Centers Content Services Play Schools Tutorials .00 2. These were followed closely by Educational Technology and Tutorial firms. Here are the key highlights of a poll conducted among Private Equity & Venture Capital firms for this report.What PE/VC Investors think ….00 5. Interestingly. Fund managers from about 35 firms participated in the poll. the highly regulated K-12 sector scored over Play Schools in terms of attractiveness to investors.00 6.00 4.00 3. Most Attractive Sectors for Investments Vocational Education Test Preparation Tutorials Education Technology K-12 Education Play Schools Services to Educational Firms Distance Education Content Services Higher Education Day Care Centers Language Training 0. Will investments in highly regulated sectors (like K-12 & Higher Education) increase? 48. real estate issues (particularly for old schools/colleges) and talent availability (especially among the faculty) as other challenges in making investments in the Education space. Apart from regulatory aspects.4% Investors participating in the survey were split almost evenly on the question of investing in highly regulated sectors. Given that there is enough scope in the non-regulated sectors. investors highlighted finding credible promoters. 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. And also that the structures used to extract profits into private companies might not survive a challenge in the courts.Apart from the ones featured in the table. Finishing courses. over-crowding in the ancillary sectors.6% Yes No 51. Education oriented toys & games and Teacher training. 11 . lack of ventures with sufficient scale. Some investors also fear that the growth cycle is nearing the peak in the tutorial and test preparation sectors. given the supplydemand gap. is very attractive in terms of scalability of business potential and its ability to absorb significant amounts of capital. other sectors that some investors polled suggested might be of interest included E-learning and content development. they can be “sufficiently” addressed by creating “efficient investment structures”. in the meanwhile. The optimistic investors feel that K-12 especially. they would rather steer clear. long gestation periods (in K-12). These investors believe that regulatory issues are bound to be relaxed in the long term and. This has helped us get a better insight into the company and strategize for our growth plans. VI: Apart from the capital. treat it very carefully and as if you had invested your own money. . VI: What would your advice be to other education entrepreneurs who are considering this kind of financing? PM: The most important thing is to focus on the business plan and raise money to the extent it is required. Venture Intelligence: Why did your company choose to go in for PE financing? Pramod Maheshwari: From our company's perspective we were at the growth stage and there were two things in our mind: one was to raise growth capital and two was to get visibility and the validation of valuation. raising PE has brought in a lot of discipline into the company MIS.Entrepreneur Interview Pramod Maheshwari Chairman & Managing Director Career Point Infosystems Funding: The Kota-based Career Point had raised Private Equity capital from Franklin Templeton PE in July 2009 and had a successful IPO in September 2010. Entrepreneurs should take the constraints put in on the financial side and the systems required for reporting. 12 . once you have raised capital. positively and constructively. If a third party like a PE/VC investor comes in and validates your valuation. since these investors have a lot of portfolio companies and they have a good network in the financial sector. what are the value additions which a PE investor brings in? PM: Talking in particular about my company. they bring a lot of synergistic opportunities to the table. However. then that gives confidence to subsequent investors (including public market investors). Also.i.e. the business has to be run by the entrepreneur. but I feel that these restrictions are good to create a foundation for the company to take a big leap. Once a PE investor comes in. etc. There is also reservation among entrepreneurs that the investors who come on board will put various kinds of restrictions. The investors cannot be expected to run your business in terms of coming on board and managing the operations. you get into the radar of people who are tracking companies in your sector and that opens up opportunity to raise additional capital if and when you require it.. Second. don't start taking uncalculated risks. So if you have that sort of experience in your team and the diligence to look at micro details. he/she should first have a clear business model. strategic inputs.Entrepreneur Interview Uma Ganesh Founder & CEO Global Talent Track Funding: Pune-headquartered vocational training firm Global Talent Track had raised Venture Capital from Helion Ventures and Intel Capital in January 2009. a good network within the industry. PE/VC investors want you to have a good management team. etc. where there are probably several players in each segment. VI: What would be your advice to other education industry entrepreneurs considering this form of funding? UG: If an entrepreneur is looking to raise money. you need to find your sweet spot. 13 . Apart from this. the ability to bring in the right people quickly and especially strong execution capabilities. that could help us reach out to global markets as well. it's often not about breakthrough ideas. that would be a great asset when it comes to raising VC funding. In a field like Education. Especially in Education. We also felt our model has relevance to markets outside India as well and hence we can be an international operation very quickly. it's about meticulous execution on the ground. Venture Intelligence: Why did your company choose to go in for VC financing? Uma Ganesh: Employability is a very large business opportunity. to bring that level of differentiation and relevancy. To address this opportunity. we felt the need to have a very scalable model with adequate funding. we wanted the right kind of VC investors who could bring us strategic advantages like their network. So. 6 150 128. Transaction Services. Mumbai PE investments in the education sector increased from USD 129 million in 2009 to USD 183 million in 2010.Private Equity in the Indian Education Sector – Opportunities and Challenges Nitish Poddar Associate Director. 200 Education Deals in India 182.9 100 20 11 50 37. Some of the large recent deals in the sector include – PremjiInvest's USD 43 million investment in Manipal Education and India Equity Partners' USD 37 million investment in IL&FS Education and Technology Services. New Delhi Aneesh Vijayakar Executive Director.6 11 0 2008 2009 Value (USD Million) 2010 14 . Transaction Services. after China and the US. Third largest education system globally Largest education market in the world Largest services market in India Government increasing focus and spend 15 . The landscape is primarily dominated by central and state government funded and managed institutions with 80% of all schools being government schools.000 higher education institutions. Education sector is the largest services market in India with a market size of more than 450 million students and USD 57 billion per annum (as of 2009). With a population of approximately 540 million in the 0-24 age bracket.Sector Contribution (Deal Value) Others 29% K-12 23% Higher Education 5% Pre-School 6% Vocational Training 8% Education Services 20% Test Preperation 9% India Advantage India has the third largest education system globally. The government currently spends about 4% of GDP on education. which is planned to be increased to 6% in the 11th five year plan to INR 2.700 billion from INR 435 billion in the 10th five year plan. with one million schools and 18. it is also the largest education market in the world. test preparation. Educational and related expenses are deemed an investment. Of the USD 183 million of PE investment in this sector. coaching cases. significant amount of investment is required industry estimates indicate that to meet the planned Gross Enrollment Ratio of 15%. approximately 70% has been raised by businesses in the non-regulated space – pre-schools. Government reforms and higher spending – the government has been taking steps to enhance education infrastructure and literacy in India. Industry estimates indicate that to meet the gross enrollment ratio target in elementary education. which provides for free and compulsory education for students in the 6-14 age group. To meet the increasing demand for quality education in India. Change in mindset – with the rise in middle class incomes. an investment of approximately USD 21 billion is required in capital expenditure and USD 7. the planned spend on education in the11th five year plan is almost six times that of the 10th five year plan. etc.500 additional institutions need to come up by 2015 and to meet 15% gross enrollment ratio in higher education by 2012. private equity interest in this sector has grown significantly. Quality perception – quality of public sector education is perceived to be lower than that of the private sector. there is a huge potential for private investment. have predictable cash flows and low / negative working capital dependency.High Investment Potential Till the early 1990's. In 2009. One of these include the Right to Education Act. This is expected to grow to USD 65 billion and USD 20 billion by 2012 at a CAGR of 13% and 18% respectively. most education businesses have the ability to withstand downturns in economy. The balance investments have been made in the regulated space which is indicative of the complexity involved in investing in the regulated sector. Given this significant gap between demand for quality and relevant education and supply. Other regulatory changes are also planned to ease investment and promote foreign private players to enter the sector. ICT segment. resulting in private institutions being set up by individuals and corporate groups. vocational training and books). promoting higher investments in the said sector. The growth will primarily be driven by: Demand supply gap – estimated investment requirement of approximately USD 100 billion to meet the demand from 230 million students enrolled each year and increasing by 8 million each year. government regulation in the education sector had adversely impacted the operational efficiency and effectiveness of educational institutes. 16 . As a business model. Some of the key factors that make this an attractive sector for private equity investors include: Favourable demographics of India and significant demandsupply gap that provide significant opportunity to scale up businesses in this sector. We have seen significant interest from private equity investors in the education Sector. ICT. their participation has been increasing. up to 25% reservation for economically weaker section students in private aided and unaided schools and no capitation fees.5 billion in operating expenditure. Further. This change in attitude will act as a catalyst. Accordingly. multimedia. The early 1990's witnessed a liberalisation movement within India and a growth in entrepreneurship across the country which also resulted in greater focus on education. and Robust growth rates and attractive margins (low payback period) Though PE investment is still relatively low in both volumes and value terms. 45. an additional 460 institutions would need to be set up. education services. tutorials. which can compete with other education systems globally. the savings ratio for securing higher education for their children has touched 55%. The increased need for quality education spurred the growth of private education in India. the regulated segment accounted for USD 45 billion and the unregulated segment for USD 12 billion of the total education market. This will further heighten the demand for private sector institutions. Growth Drivers The education industry in India can be broadly classified in to the regulated segment (K12 and higher education) and the unregulated segment (preschool. legal involvement from the start. and operational due diligence.com 17 . However. given this structure. financial model development. where the cash flows and assets continue to rest with the trust. fee. As a result. the education sector also poses many challenges for private equity houses investing in this sector which need to be addressed. All these regulatory hurdles make this sector challenging to invest in and more importantly. and b) In some states where for-profit schools are allowed. Aneesh focuses on the Education sector and has advised a number of corporate and private equity clients in the context of their investment decisions Contact Details: Aneesh Vijayakar T: 91 22 3090 2131 E: aneeshvijayakar@kpmg. with a clear and viable exit strategy.Key Challenges Despite increased investments and strong growth opportunities. Faculty shortage and lack of interest in the profession – India's pupil-teacher ratio of 23 compared with a world average of 15. points to a severe shortage of teachers. profit making and requires plough back of all surplus. Some of these challenges have been highlighted below: Regulatory Hurdles – the regulatory structure is antiquated with multiple government bodies having overlapping functions. investors resort to innovative structures to realise profits through outsourcing. The regulated segment is controlled by the government to prevent commercialisation. financial investors are unsure of investing in a company without direct control over underlying assets and cash flows. student intake and course delivery. and not the management company that is being invested into. With India's demographic advantages and the opportunity to tap in to the yet unexploited education sector. About KPMG KPMG Transaction Services practice offers a suite of advisory services to private equity funds covering financial and commercial due diligence.com Nitish Poddar T: 91 124 334 5091 E: npoddar@kpmg. Further. these innovative structures are currently untested from a regulatory and tax standpoint. service contracts or supplementary courses. but given the right investment climate. the situation is worsened by the low number of students opting to qualify as teachers as teaching is not a 'preferred' option at higher education levels. this sector could offer adequate potential for growth. exit route for such management companies is currently untested and how the markets will respond to a management company proposing a public listing is unknown. There are also restrictions on curriculum. Investors need to manage their risks through thorough due diligence. A) Indirectly through investment in companies providing school management or other allied services. Regulatory issues are expected to remain a concern for private investors looking to invest in the regulated segment. Lack of professional management – some education institutions lack professional management and are at times run by promoter families which may require external assistance to scale up the business and make it competitive. Further. market and industry analysis. PEs are upbeat on the education sector. Management company structure and lack of exit route – in the regulated segment there are two routes available for corporate participation. they can invest directly into the schools which are affiliated with a foreign board. The Constitution (Forty Second Amendment) in 1976 transferred education from the State List to the Concurrent List. The Constitution (Eighty Sixth Amendment) Act. Further. This Amendment also introduced a new article (51A) which imposed a duty on parents and guardians to provide their children with educational opportunities. and Innovative Structures INTRODUCTION: This Article first discusses both the constitutional and regulatory frameworks governing the education sector in India. The NEP identified the union government as the organisation in charge of reinforcing the national and integrated character of education. the State Governments have been vested with the responsibility of providing early childhood care and education for all children until they complete the age of six years. The central government is also responsible for declaration of education institutions as “Deemed to be University” on the recommendation of the UGC. Pursuant to these amendments to the Constitution of India in the year 2002. maintaining quality and standards (including those of the teaching profession at all levels) and studying and monitoring the educational requirements of the country.Opportunities. through an Amendment to Article 45 of the Constitution. research and scientific and technical institutions. The formal education industry consists of primary or elementary. Ministry of Human Resource Development (the “NEP”). Following the 1976 Amendment. Higher education and technical education deal with undergraduate and graduate level education. education in India was a subject within the competence of the individual states comprising the Union of India. REGULATIONS AND REGULATORY BODIES GOVERNING THE EDUCATION SECTOR IN INDIA: Education in India can be broadly categorized into formal (or core) education and informal (or parallel) education. Elementary and secondary education is collectively referred to as K-12 education. 2002 introduced Article 21A in the Constitution of India imposing an obligation on the state to provide free and compulsory education to all children of the age of six to fourteen years. thus giving both the Central and State Governments jurisdiction over it. comprising of kindergarten and 12 years of schooling. The Government of India is responsible for major policy decisions relating to higher education in the country. the National Education Policy.PE Investment In Indian Education Through The FDI Route . secondary and higher or technical education imparted by recognised and unrecognized educational institutions. 18 . CONSTITUTIONAL FRAMEWORK OF EDUCATION IN INDIA: Prior to 1976. and finally discusses strategies and options available to investors to operate within the parameters set by the legal framework. In addition to determining standards in institutions of higher education. Challenges. the Government of India passed the Right of Children to Free and Compulsory Education Act in the year 2009 to ensure that every child has a right to be provided full time elementary education of satisfactory and equitable quality in a formal school which satisfies certain essential norms and standards. It then looks at the challenges that these throw up for private equity investment in the field. 1986 (as modified in the year 1992) was issued by the Department of Education. it provides grants to the University Grants Commission (the “UGC”) and establishes central universities in the country. 1988): 19 . and under the control of. Central Board of Secondary Education. and provide plan grants for their development and non-plan grants for their maintenance. Several professional councils have been set up for the purpose of awarding recognition of courses. The Central Board of Secondary Education (CBSE) Affiliation Bye . the “not-for-profit” company has to obtain a no objection certificate from the concerned state government and must have education as one of its objects. the right of conferring or granting degrees shall be exercised only by a university established or incorporated by or under a Central Act. the society. among others. under the Societies Registration Act. which is responsible to. The Government has noted that institutions which are not accredited or affiliated to any university are to be considered as fake institutions having no legal personality and the degrees awarded by them cannot be treated as valid for academic or employment purposes. b) The constitution of the society. any institution which has not been created by an enactment of Parliament or a State Legislature or which has not been granted the status of a “Deemed to be University” is not entitled to award a degree. It is interesting to note that while most State Governments in India grant affiliation to educational institutions established and maintained by a society. state government or state-funded institutions and self-financed institutions. conditions on the basis of which recognition or affiliation is granted to a school or a college. every individual or association of individuals or firm or society registered under Societies Registration Act.laws need to be adhered to.laws which state that this requirement is to be followed mandatorily: The bye-laws define a private unaided school as a school run by a society. Chapter III on the Norms for Affiliation states that the CBSE may grant affiliation to. or a “not-for-profit” company. the Central Council for the Indian School Certificate Examinations and the international baccalaureate while higher and technical education is governed by the rules and regulations framed by the UGC and the individual regulatory bodies such as the All India Council for Technical Education. The technical education system in the country can be broadly classified into three categories – central government funded institutions. the State of Haryana permits a company incorporated under the Companies Act.Laws (with effect from January 28. and c) The school must have a properly constituted governing body or managing committee. the affiliation or accreditation rules and bye .K-12 education is regulated by state boards. trust duly constituted and registered under the provisions of Central or State Acts. company running the school should be such that it does not vest control in a single individual or members of the same family. tutoring and test preparation. 1860. The Guidelines for Affiliation by the Council for the Indian School Certificate Examinations (with effect from May 2006): Chapter I of the guidelines provide conditions for provisional affiliation of schools wherein the following requirements. or a State Act. 1956. According to the University Grants Commission Act. trust or a company incorporated under section 25(1)(a) of the Companies Act. as educational. or an institution deemed to be university or an institution specially empowered by an Act of the Parliament to confer or grant degrees. The informal education industry in India mainly consists of preschool education. not getting any regular grant-in-aid from any government source(s). The Central and state affiliation regulations or bye . The coordination and cooperation between the Union and the States is brought about in the field of education through the Central Advisory Board of Education (CABE). According to Rule 29 (1) of the Haryana School Education Rules. notification CBSE/AFF/2007/271721-276720. private. State Governments are responsible for establishment of state universities and colleges. and should channelize the funds towards furtherance of education. trust. Further. 1956 to establish and maintain schools. among others. However. 1956 for educational purposes. trust or a “not-for-profit” company. 1956. or trust 1. vocational education. corporate training. 2003. One of the most important conditions as prescribed in a majority of these affiliations.laws is the requirement of the school or the college to be established and maintained by a society established under the Societies Registration Act. 2. 1908 or a “not . unaided schools established by (i) societies registered. trust.profit” company incorporated under section 25 of the Companies Act. regulations or bye . dated October 15. are to be satisfied: a) The school should be run by a registered society. promotion of professional institutions and providing grants to undergraduate programmes and various awards. 2007.for . amended the definition of a private unaided school to include those established and operated by a “not-forprofit” company incorporated in accordance with section 25 of the Companies Act. Thus. 1860. 1956. 1860 or a trust established under the Registration Act. In order to be classified as a recognised educational institution. The following are the extracts of a few affiliation regulations or bye .proprietary character or by (ii) trusts.laws set out in detail. charitable or religious societies having non . It must not be run for profit. grants in the foreign entity are offered to the students of the educational institutions in India without the involvement of FDI. hotels. alternate structures are being explored. Despite the permission available to “for-profit” companies to establish and maintain schools. as a result of this impediment. Entities such as preschool. educational institutions. however. 1956 may apply to the appropriate authority in the prescribed form for setting up primary school. scholarships. resorts.laws on affiliation. partnership firms. the current FDI policy read along with the various affiliation and accreditation rules or bye . city and regional level infrastructure) subject to certain conditions which.laws effectively prohibit foreign investors from investing in a society. opted for foreign collaborations wherein certain courses. Up to 100% FDI is permitted in development of townships. schools set up by “for-profit” companies) are affiliated to the international baccalaureate. housing.2000.created under the Indian Trusts Act. b) a management company (usually incorporated as a private limited company) which provides services such as books or transportation to the society. issued by the Department of Industrial Policy and Promotion. vide Press Note 2 (2000 series) dated 11. Foreign investment is of two kinds foreign direct investment (the “FDI”) and foreign portfolio investment. private coaching and online tutorial enterprises have emerged as high yielding investment avenues for educationfocused private equity and venture capital players. trust or “not-for-profit” company. The Government of India has. Ministry of Commerce and Industry permitted foreign direct investment up to 100% under the automatic route in the education sector. According to the Consolidated FDI Policy (with effect from April 1. venture capital fund and trusts which are in the form of a venture capital fund. trust or a “not-for-profit” company which establishes and maintains educational institutions. be noted that most of these schools (i. It may. These include FDI in the field of online tutorials and online education.e. While point (a) prohibits the receipt of FDI by the society and the trust in entirety. Government of India. trust or “not-for-profit” company permitted to establish and maintain schools in India. proprietory concerns. Unlike other state and central regulations or bye . 20 . high school and senior secondary school. INNOVATIVE STRUCTURES: For those investors who seek to invest in the formal. among others. The FDI policy also regulates the receipt of FDI in constructiondevelopment projects including educational institutions. 2011) issued by the Department of Industrial Policy and Promotion. built-up infrastructure and construction-development projects (including but not restricted to housing. 1956 can receive FDI.resident. these rules do not expressly require that a school should be established by a “not–for-profit” entity. 1882. while FDI is ostensibly permitted in education under the automatic route. it cannot apply its profits or other income towards the payment of any dividend to its members. commercial premises. or company registered under the Companies Act. CHALLENGES IN PE INVESTMENT IN EDUCATION IN INDIA THROUGH THE FDI ROUTE: Foreign investment essentially refers to an investment in an enterprise by a non . Therefore. recreational facilities. The last decade has seen a sharp rise in private equity investment in the informal or parallel education sector. These structures typically consist of: a) a society. A combined reading of the provisions of the FDI Policy and the various state enactments relating to the establishment of educational institutions in India indicates that: a) schools and colleges that are established and run by a society or a trust are not permitted to receive FDI. most schools in India are established and operated by trusts and / or societies in order to avail tax exemptions and concessions such as lands at concessional rate exclusively available to such entities. FDI can be made in Indian companies. Ministry of Commerce and Industry. include minimum area conditions for the project. Another consequence of the stringent regulations and the need for “not-for-profit” character of educational institutions is that a large chunk of education-focused FDI is being made in the formal and informal education sectors in India unaffiliated to central. trust or “not-for-profit” company. however. FDI in trusts (other than venture capital funds) and societies is prohibited. subject to the sectoral rules or regulations as may be applicable. and c) an infrastructure company which provides land and other necessary infrastructure to the society. Several educational institutions have. regulated education sector consisting of recognised or affiliated educational institutions. middle school.2. aids. point (b) makes the investment less attractive to any investor seeking to earn profit from the investment made into the company. hospitals. state universities or regulatory bodies. minimum amount of capitalisation and time period within which the project has to be completed. and b) a “not-for-profit” company incorporated under section 25 of the Companies Act. unaided educational institutions which are not affiliated to the concerned affiliation boards. An objective analysis of the needs of the education sector and the advantages or disadvantages of permitting for profit investors has to be made. trust or the not-for-profit company running the educational institution pays fees to the management company and pays rentals to the infrastructure company for the services and the land/ infrastructure provided by them. Hence. or affiliated with. (http://www. various affiliation boards insist that the educational institutions be established and operated by “not-for-profit” organisations. While this innovative structure is being commonly used to work within the rules and regulations which are. thereby reducing their chances of receiving FDI. seeking to provide to all including the disadvantaged and the weaker sections of the society an equal opportunity in receiving education and ensuring that the education is provided at high standards of quality. Chambers Asia quotes our clients.FDI is channeled into the management company which provides services to the society and/or the trust running the educational institution. without being pedantic. CONCLUSION: Though FDI is permitted in the education sector under the automatic route. and choose to rely on us continuously. To provide better opportunities for students. most private equity investors instead look to invest in sectors and institutions which do not fall under the purview of various rules and regulations and to a large extent remain unregulated. The present day education system in India is based on the values of equality. We feature in Chambers Asia 2010's national rankings for our Corporate / M&A and Private Equity practices. The society. payment of salaries to the staff. “[NDR] was always on the ball. helping us to move forwards and providing us with a detailed understanding of the complex legal considerations involved. Doraswamy & Raja Narasappa. In light of these growing needs. against the idea of commercialization. This has resulted in FDI being made in the entities imparting informal or parallel education or in private. one cannot undermine the advantages of permitting private. the relevant affiliation boards. One must ensure that the transactions between these management companies and the society.” and. social justice and democracy.profit” or foreign investment can bring. to say the least. infrastructure. We are proud that our clients have recognized this. I'd recommend the firm wholeheartedly. The relationship between the management company and the infrastructure company on the one hand and the “not-for-profit” entity setting up and maintaining the educational institutions on the other must be a meaningful one and not be pursued with an intention to mislead the authorities regulating the sector. Most educational institutions engaged in imparting K-12 education look to get recognised by. joint collaborations between the private players and the central and the state governments. smart and professional team that knows how to push a transaction forward and will go that extra mile to close a deal.com/Asia). for-profit players in the industry. “this is a small. trust or “not-for-profit” companies on the other. and various other rules relating to the admission of students and employment of teachers. Doraswamy & Raja was founded with the aim of bringing an international quality approach to legal practice in India. This can be ensured by encouraging a wider participation by private players. unaided schools and About Narasappa. The education sector needs relaxation of current rules and regulations to facilitate its growth. colleges which are not recognised or affiliated do not follow the norms of fixing fees. in principle. This structure enables the investor (investing in to the management company) to extract returns on its investment. 21 .” We are committed to providing high quality legal advice. responsive. the current affiliation rules and regulations in the formal or core educational institutions are not conducive to the growth of foreign investment. As private. maintaining the highest levels of professional integrity and motivating our team in a nurturing work environment. Combined efforts of public and private entities through private public partnerships and grant of aid by government to private institutions are being sought to improve the education system. The present education system lacks support in the form of basic infrastructure. one cannot ignore the possibility of imposition of more stringent laws and rules given the nature and sensitivity of the sector. well trained staff and efficient management and organisation. there always exists an element of risk. trust or “not-for-profit” companies (in terms of pricing) are conducted as arms length basis and proper authorisation is sought from the board of directors of the management companies and the infrastructure companies on one side and the managing committee or the governing council / body of the society.chambersandpartners. We are known for our partner-led service that combines practical solutions with sound legal knowledge. However. While the principle on the basis of which the Government of India and the State Governments insist on “not-for-profit” character of educational institutions is appreciated. educational institutions need to be equipped with the basic and world class infrastructure and support. the education system in India cannot be denied the opportunities that “for. com Sindhushri Badarinath. Sindhushri is a graduate of the 2009 batch of Symbiosis Law School. Hyderabad. Her prior work experience has been in the area of capital markets transactions (IPOs. She has clerked at the International Criminal Court in the Hague. Bangalore and has handled matters relating to general commercial law and employment / labour laws. She has also completed a diploma in international business laws and corporate laws in India from the Symbiosis International University (formerly known as SIEC (Deemed) University). Netherlands. She subsequently received her Masters in Law from the University of Michigan Law School. in its acquisition by eBay. Associate Sindhushri works in the areas of private equity / venture capital transactions and general commercial law at Narasappa. Senior Associate Neela works extensively in the areas of venture capital / private equity transactions and general corporate advisory at Narasappa. he was an Associate at Udwadia. He is admitted to practice law in India and in England & Wales (currently not practicing). with a deep understanding of the law and a sharp intellect. Neela can be reached at neela@narasappa. Bangalore. Prior to his stint with O'Melveny & Myers. retail. EachNet. he was an Associate for about 3 years with the international law firm.About the Authors Siddharth Raja. She has previously worked as an associate with Indus Law. Siddharth heads the private equity department at the Firm. Neela graduated with honours from the National Academy of Legal Studies and Research (NALSAR) University of Law. Pune. Siddharth can be reached at siddharth@narasappa. where he specialized in cross-border M&A. He is described as “a highly diligent lawyer. Doraswamy and Raja. Prior to co-founding the Firm. healthcare.com 22 . Udeshi & Berjis in Mumbai for 3 years.” (Chambers Asia 2010). Sindhushri can be reached at sindhushri@narasappa. where she was a Michigan Grotius Fellow. and manufacturing sectors. GDR and FCCB offerings) at a leading national law firm in India. Partner Siddharth has extensive experience in private equity and venture capital transactions as well as expertise in cross-border and domestic M&A. Udwadia & Udeshi where he worked on various mergers & acquisitions. corporate and corporate finance transactions and assignments. O'Melveny & Myers LLP. Ann Arbor. corporate finance and general commercial law. She has worked on a variety of corporate legal assignments for clients in ICT (information and communication technology). the Department of Management Studies. Doraswamy and Raja.com Neela Badami. Before relocating back to India. including representing China's leading e-commerce company. Siddharth also has experience in advising leading Indian corporates on their China business acquisitions and market-entry strategies. Siddharth has been a visiting faculty member at the oldest management department in India. Indian Institute of Science. Siddharth is ranked in Band 1 among private equity lawyers in India (Chambers Asia 2010). and has been published in leading national dailies. in their Hong Kong office. Siddharth was a Partner for over a year at the Indian law firm. are running at low utilization levels indicating overbuild. the premium K-12 school market is not as deep as it is widely believed to be.Investment Opportunities in the K-12 Sector in India – Myths and Reality Karan Khemka.a. already an indication that the market is not deep) and could identify only 248 schools that charge annual tuition fees of Rs. Simply put.000 according to Government of India statistics). These business plans are based on two fallacies: that the Indian private school market is large enough to support this expansion and that it is logistically possible for a single company to start over one school a month while maintaining quality and capital efficiency. 20. 20. 20. Also. 23 . Looking first at the size of the Indian private school market – Parthenon is aware of estimates that quantify the market to have ten billion dollars or more of turnover.000) and these twenty cities in 2010.000 or more in the eight largest (Tier I) cities in India. The top-down estimations commonly circulated on the Indian private school market are often ten times the size demonstrated by a survey of each school. there are many cities in which private schools charging more than Rs.000 or more.000 p. The Parthenon Group There is a plethora of private school businesses in India looking to start as many as twenty private schools a year to meet perceived demand of the market. Parthenon recently conducted a survey of every private school in India with a phone number or an email address (just over 3500 schools. 50. Only 53 new schools were opened in this price bracket (>Rs. The total enrolment in this price point is 340.000 students. These estimations are often based on extrapolations based on total enrolment in Indian schools (290 million students) or the number of private schools in India (75. Expanding the base to include the next twelve Tier II cities in India there are a total of 470 private schools in the twenty largest cities in India charging annual tuition fees of Rs. Parthenon research shows that parents are willing to travel a maximum of one hour to bring their kids to school and that. given the scale and logistical complexity of the market.. besides location.000 ~Rs.g. Unlike higher education. A related point is the actual number of schools a single company can open in a given year. However. DPS) have grown by 5 to 6 schools a year in recent years – far below the 10 to 20 schools targeted by newcomers with far less experience. The investment opportunity in the Indian private school sector is entirely viable. curriculum and scale will largely determine the economic viability of the school. where students often move to another city to go to college. K12 education is a local catchment business and needs to be understood that way. This means that investors should choose their markets cautiously and invest in careful data-driven analysis.300 Crores in 2015 in India. political clout and access to land.300 Crore India Tier 2 2. it is probably unlikely to be able to support the expansion plans of 20-to-30 schools per year. 2010 – 2015F Rs. K-12 students will not travel that far to go to school. The most experienced school operators in India (e.000 India Tier 2 4. 8. projections which are frequently announced by many local education companies.300 Crore 6. Ryan.000 Crore ~Rs.Market Revenues by Tier. The Tier I school market will grow at 13% CAGR whereas the Tier II segment will witness a 15% CAGR growth. 24 . it requires a solid business plan targeting geographies and price points (by city) that can support rapid and profitable growth. 6. the price point. brand value. As this market turns out to be quite thin.000 India Tier 1 0 Revenue 2010 Revenue 2015F India Tier 1 15% 13% CAGR 10-15F The premium K-12 total market demand across geographies is expected to grow from ~Rs 3. 3. Podar.300 Crores last year to ~Rs 6. price points and scale or they might end up having a school that does not run at full capacity and is financially unsustainable. This type of analysis allows the investor to estimate the potential scale for a school at a particular location. 25 . how many children in the catchment area can afford your tuition fees). The Parthenon Group has the largest dedicated Education Practice in India with 35 advisors focused on providing clients with data-driven analysis to make informed decisions.200 Children 50 . adjusted for catchment area More than 400 children 200 .300 Children 100 .100 Children Up to 50 Children Outside of catchment area Proposed New Schools Site Competitor School The first map shows you exactly how many children in each of Mumbai's wards are able to afford a school at a particular price point. The second map adjusts the affordable population by specifying which neighbourhoods belong to the school's catchment area based on parents' drive time preferences. In the early planning stage. investors need to test assumptions on school rollout. Children able to afford upscale segment Children able to afford upscale segment. identify your competitors and give insight into the optimal capacity of the school.Micro-market analysis will tell you the size of the local demand (that is. implementation support and quality improvement. acquisitions and profit improvement. an entrepreneurial spirit and customized insights.About the Author Karan Khemka is the Head of The Parthenon Group’s Asia office and leads International Education Centre of Excellence practice. Mr. The Education Center of Excellence is a leading advisor to the global education industry. higher education. London. Indo-US Summit on Higher Education and InspireED among others. the firm has embraced a unique approach to strategic advisory services built on longterm client relationships. Since its inception in 1991.com T: 022 6744 2500 / 6744 2506 About The Parthenon Group The Parthenon Group is a leading advisory firm focused on strategy consulting. vocational education and corporate training. San Francisco. Mr. EDGE. with offices in Boston. and Mumbai. IBC Asia – Higher Education Summit. foundations. vocational training and school segments in over 30 countries. Khemka has extensive experience in the Indian. Contact details: Priti Ahuja E: pritia@parthenon. International education project scopes include business plan development. school systems and for-profit companies – in over 60 countries across the globe. with clients across diverse sectors that include publishing. Credit Suisse Global Services conference. consumer education. Khemka has advised some of the largest schools and higher education companies globally on expansion. Khemka is frequently asked to speak at leading global forums on the school and higher education sectors. Parthenon is also the only strategic advisory firm in the world to have a dedicated education practice. Asian and Middle Eastern sectors and has completed projects in the higher education. 26 . Karan holds a bachelor’s degree in International Relations from Georgetown University and a MA in Law from Cambridge University. Since 2001. Parthenon has completed more than 400 education projects with private and public sector organizations – including universities. such as the International Finance Corporation conference on sustainable investing in education. a willingness to share risk. primary and secondary education. Mr. Vice-President.it is heartening to note that the literacy rates have increased by ten percentage points. outcomes associated with the education ecosystem in India are still poor. It is apparent that in order for the country to grow its GDP at 8% per annum. Such a state of affairs was potentially justifiable given the tepid growth of the economy.we are also dealing with something we have never done before and therefore don't have a sense of how we can do it. 75-80% of them need to be trained on skills. This happens because of the perceived lack of effectiveness of this education to translate into jobs. the results of the current census over the last census are encouraging. right tooling the work force is one of the biggest challenges and opportunity for the country. However. 27 .VOCATIONAL EDUCATION – the time is nigh! Abhishek Sharman. it needs to be supported by commensurate growth on the supply side. The enormity of what needs to be achieved should not be mistaken because not only are we dealing with large numbers. As India looks to add more than 130 million people to its work force in the decade of 2011-20. Very few people in this country focus on education to upgrade their skills because of the lack of determinate returns associated with skills education. as many as 60% of children enrolling for schooling drop out without completing their education.meaning growth in trained employable manpower. . Things have been changing in the last couple of decades. “Vocational Education” hasn't been celebrated in India till now. Various sources estimate that for this incremental working population to be gainfully employed. India Equity Partners Education in India has traditionally been a means to get a degree and not a job (though ideally one would like to achieve both). the relatively underdeveloped manufacturing and services sector and a puritan approach which has been imbibed across generations in India and which commands that education is to gain “knowledge” and should not be merely a means to a source of livelihood. So it is not only a challenge of “formally imparting skills training” but also a challenge of “re-tooling” the skills.some partnering with the government to target below the poverty line youth. For this to happen effectively. inputs and participation from the relevant sector participants should be invited in the courses being taught. There is also a need to study and be aware of global best practices because there is a lot to learn from vocational education focused companies globally. This compares very poorly with most other developed and developing countries. if done correctly. which is one of the largest education companies in the world. Apollo. India does not have private entities which have been able to meaningfully participate and take advantage of the opportunity. some targeting IT training. Countries like South Korea have 95% of the working population trained on skills and even Botswana has 22% of its work force formally trained on skills. The sector needs long term growth capital and partnership with capital providers with capability and expertise. placement linkage is very essential for the course to succeed and this will happen only if relationship is built with industries and corporate who see themselves as partners to such skill training. only 2% has formal vocational training. 28 . Last but not the least. Secondly incentives need to be built in for the student to undergo skills training (apart from placement). For building a scalable vocational training business. it's high time that we see businesses of scale being created focusing on vocational education in India. facilities and placement linkages. others focusing on English education but no single player has been able to create a large business in Vocational Education and one can safely assume that market opportunity is not the reason for this. Even including informal training programs. it was felt that the working population needed to be re-tooled as the economy started changing from a manufacturing driven economy to a services driven economy. only a maximum of 10% of the workforce gets vocational training exposure. These incentives could be third party payment or loan availability for the course or something as quite often happens in developed countries. Private Equity can play an important role in building scalable skills education focused companies. It's a fragmented market with different players targeting different niches. This is the first and most important criteria which the student looks at (of course. while immense and imminent. is by no means insurmountable.the completion of the course potentially enhances chances of success/ promotion in the job. Despite this need and widely accepted urgency to react. These initiatives and investments. the education imparting entity may itself certify the course once it is reputed and seen as a leader in education in that field). What compounds this problem further is that a disproportionate part of India's manpower is engaged in agriculture and allied industries whereas the incremental growth of the GDP is happening in large proportions from the growth in manufacturing and the services sector. will create differentiation.As per an article by Technopak. incentives for training and placement linkage. out of India's 500 million workforce. A large number of “for profit” education companies which are today significant players in the educational landscape in the United States of America were created when. it is important that three factors are taken care of – accreditation. starting in the 1960s. The challenge. was created as a response to this challenge. Any scalable model in education needs investments ahead of execution in order to create quality standards. It is important that the skills being imparted should be certified by the industry body or a reputed player in that segment of education. The challenge and hence the opportunity is massive. Delhi. We typically invest $20-60 million in a single investment but will invest larger amounts with co-investors and partners. recruiting senior management and assistance with fund raising.com T: 91 22 4000 1000 About India Equity Partners India Equity Partners (IEP) IEP manages an India-focused. IEP aims to partner with outstanding entrepreneurs and management teams in fast growing sectors as a value-added investor. a $350 million private equity fund focused on India. Mumbai and Mauritius. Contact Details: E: abhishek@iepfund. 29 . Abhishek is active in various industry forums and is a member of the Economic Affairs sub-committee of the CII for the western region. We follow a fundamental research-driven investment philosophy with an investment horizon spanning 4-7 years. long-term. Prior to IEP. customer expansion. IEP has offices in New York. Education and Skills Training. Healthcare and Financial services sectors. with more than $1 billion in investments. IEP is part of a $2 billion pool of affiliated funds dedicated to India. Abhishek holds Management and Engineering degrees from Indian Institute of Management. an investments firm focused on emerging markets.largely Russia and India. He plays a key role in IEP's investments in the HR Services. acquisitions. Abhishek worked with SUN Capital.About the Author Abhishek is a Vice President at IEP. We are committed to assisting our portfolio companies and we accomplish this by leveraging the experience and relationships of our team members for strategic thinking. Calcutta and Indian Institute of Technology. control-oriented private equity fund with approximately $350 million of capital. operations improvement. The group is headquartered in Mumbai and has a pan India presence with 25+ offices across the country and employs more than 470 employees across the verticals. Hong Kong. Singapore. IT. Fax: 91 22 6704 8022 30 . US. About Systematix Group Systematix Group is a one stop shop for various financial services like investment banking. under its gamut. We advise companies in various stages of its growth right from Venture to Mature for their funding requirements. wealth management. we have recently closed an INR 1.in E: akhandelwal@systematixgroup. Besides our two dedicated offices in Mumbai and Delhi.in Tel: 91 22 6704 8000 / 4228 7000. Since inception in 1995. we also operate through our associate partners in Japan.About Systematix Capital Systematix Capital is a boutique investment banking firm committed to providing value added services to its clients in the field of capital raising and M&A. The group's flagship company Systematix Corporate Services Limited is listed on Bombay Stock Exchange. we are currently working with various kinds of education institutions ranging from Kids School to Online Post Graduation Education Companies to Coaching Classes. Germany and UK. merchant banking. Further. Contact Info: Nikhil Khandelwal Abhishek Khandelwal E: nikhil@systematixgroup. Hospitality and Engineering. we have been instrumental in closing deals in various sectors including Education. On the education front. We also offer M&A advisory services to our clients for their inorganic growth plans and exits to the stakeholders. NBFC etc. institutional and retail broking. Healthcare. Pharmaceuticals. Real Estate.1 Bn deal for private equity placement to pathways World School. Also. the owner of the land. coaching and tutoring. The initial capex costs are very high and breakeven time for schools and educational institutions is generally long. Having a CFO is a worthy expense to monitor the movement of funds.due to interest from large number of investors. Each of these have their own unique challenges – commercial and legal and each of these need to be understood in their individual right and as part of the larger whole. Tailor the investment documents . In order to ensure this. Schools that are affiliated to foreign boards like IGCSE or IB do not have any compulsion to be run as a not for profit school. Be patient . vocational training.Issues Facing Education Investments .The Trilegal View Kosturi Ghosh. content development. Some private equity funds are even setting up dedicated funds due to the huge potential this sector has to offer. not every school is confined to be run without profit. Partner What are some of the best practices you would recommend for PE investors considering investments in the Education-related sectors? Education holds a strong social association in any economy and more so in the Indian context. Most. This has adversely impacted the growth of the education sector within India. in the recent past. This sometimes doesn't fit well with private equity investors' plans whose investment horizon is about 3 to 5 years. it takes a lot more time to identify a suitable company for a private equity investment in India in this sector compared to the developed countries in general. Another big challenge is the issue of corruption impacting the legitimacy of operations. surplus funds generated in the process of running formal schools is required to be ploughed back into the same school and no dividends can be distributed. Private institutions in India are also known to accept "donations" from individuals to compensate for shortfall in fees. Equally important are corporate governance standards and reporting measures like MIS and quarterly financial statements. However. Do the diligence – in the multi-layered structures. if not all. Understand the structures – one of the most common complaints in the case of the two or three layered structures adopted by schools and higher education institutions is the potential for leakage of funds. Other than schools and colleges. This has mandated that education and the 'business' of imparting it to be treated as a noble cause and protected against commercialization. 31 . The generally prevalent not for profit approach and a rigid regulatory set up had discouraged private equity. there are other opportunities like pre-schooling. of such transactions are not recorded and the funds are siphoned off. Moreover.adopting standardized documentation do not necessarily help when investing in this sector. education deals have seen their fair share of limelight. the education sector has been required to be run as not-for-profit institutes. These sectors are outside the not for profit stipulations and are open to investment and commercialisation. sometimes not enough time is spent studying the various companies responsible for the management of the schools. there is tremendous competition to seek out and find the best possible deals. In general. It is important to tailor the affirmative rights that the investor enjoys in the investee companies. test preparations. Some of the important things to bear in mind when investing in the education sector Understand the business – the business of education has various facets. we do not foresee any changes in the education space in the immediate future which is likely to trigger increased private equity participation. While the general argument against deregulation in this sector is the fear that it would lead to its commercialization. Entry of foreign educational institutes into India is under consideration. Various bills in relation to higher education have been tabled before the Parliament to ensure quality and transparency in the education sector and to curb malpractices. with the rising demand for private schools and the focus on quality education. Although this is a welcome move in favour of liberalization.the non-profit mandate for the sector). 7th Floor. most complex and cutting edge domestic and cross border transactions across practice areas. On one hand. De-regulation will be the long awaited catalyst that will trigger massive investment into the Indian education sector. Residency Road. It is interesting to note that in recent past there has been a concerted effort to overhaul the existing systems. Considering these and existing milieu. About Trilegal Trilegal is a full service law firm with 18 partners and over 150 lawyers across offices in New Delhi. the government seems to be in no hurry to free up regulations governing this industry.in spirit . At the Indian Education Conference 2011 held in April.com 32 . Contact Details: Kosturi Ghosh. What would be your advice on this aspect? Due to the restrictive nature of the sector.ghosh@trilegal. however. However. While more and more PE investors are developing comfort for investing into the K-12 segment by using a management company/infrastructure company kind of structure. many investors have been forced to use "innovative structures" to invest in K12 schools. there shall remain a risk of the government or the courts coming down heavily on the existing structures adopted by the schools. There is nothing new in this respect and both entrepreneurs and private equity players realise that in the face of crippling regulation innovation is the only backdoor. it cannot be ignored that deregulation of this sector will finally permit it to realize its growth and the opportunity to better existing infrastructure. however it is still saddled with the 'non-profit' idea and the surplus in revenue generated in India by the foreign provider is required to be invested for the growth and the development of the institute established by it. There is an ever present risk of these "innovative structures" being struck down because of various factors. Partner The Residency.Despite rising demand for better quality education among the people (including from the bottom-of-the-pyramid sections who pay to send their Children to private schools rather than the free government ones). till such time that the government takes note of this need to dilute the existing regulations. Having said that the bona fides of such structures is fundamental to giving these arrangements any legal backing. Bangalore – 560 025 T: 91 80 4343 4646 F: 91 80 4343 4699 E: kosturi. What is your expectation on the road ahead on the regulatory front? The education space in India is a promising sector with large potential for private equity investments. Operating at the forefront of the Indian market. 133/1. there is a strong indication towards liberalization of the sector. Bangalore and Hyderabad. Mumbai. there is also a fear that these structures will not stand the scrutiny in a court (since it violates . be it the proprietary nature of the trusts or societies or the outsourcing of the entire management of schools. Trilegal has advised on some of the largest. Investors may have to continue to explore "out of the box" structures to extend and consolidate their presence. Establishment of an educational institution involves a huge financial commitment and such a restriction will be a major hurdle to foreign players entering the market. industry and government both recognized that education needs to be looked at as an enterprise and that funding needs to come not only from the government but also from private players. Managing Director E: ssharma@generalatlantic. NY Palo Alto. General Atlantic www. China Amit Soni. Bangalore Contact Person: Sulabh Arya E: sarya@accel. GA manages approximately $17 billion in capital and has more than 75 investment professionals.accel. London. Düsseldorf. Vice President
[email protected] Contact Person: Sunish Sharma. Suite 200 Greenwich.com Office Address: 3 Pickwick Plaza.generalatlantic. Aman Hotel. CT 06830 Tel: 1 203 629 8600 Fax: 1 203 622 8818 Other Office Locations: New York. It has helped entrepreneurs build over 300 successful companies and manages $6-billion of capital globally. Germany Mumbai. Brazil London. Shanghai. U.com About us: GENERAL ATLANTIC is a leading global growth equity firm providing capital and strategic support for growth companies. Established in 1980.com About us: Accel Partners is a leading venture capital and growth equity investment firm.Listing of Active Investors in the Education Sector Accel Partners www.com Office Address: Suite 26. India Hong Kong. CA São Paulo. China Beijing. New Delhi .110003 Tel: 91 11 4220 4222 Other Office Locations: Palo Alto. New York. 33 .K. Beijing. Mumbai 400 018 Tel: 91 22 4000 1000 Fax: 91 22 4000 1010 Contact Person: K. 34 . India Equity Partners Office Address: IEP Fund Advisors Pvt. IEP aims to partner with outstanding entrepreneurs and management teams in fast growing sectors as a value-added investor.com About us: IDGVI is a US$150 Million technology venture capital fund. We follow a fundamental research-driven investment philosophy with an investment horizon spanning 4-7 years. acquisitions.idgvcindia.K. Recent investment in Education sector include iProf. customer expansion. long-term. recruiting senior management and assistance with fund raising.com Contact Person: Hemir Doshi E: hemir_doshi@idgvcindia. Annie Besant Road Worli. 505 Ceejay House Dr. Vice-President E: abhishek@iepfund. Managing Director E: kkiyer@iepfund. Ltd. a tablet based e-learning marketplace for test preparation and distance learning segments. We typically invest $20 to $60 million in a single investment but will invest larger amounts with co-investors and partners. We are committed to assisting our portfolio companies and we accomplish this by leveraging the experience and relationships of our team members for strategic thinking.com About us: India Equity Partners (IEP) IEP manages an India-focused. Education opportunities leveraging technology is one of the key areas of interest. operations improvement.com Other Office Locations: New York and Mauritius Abhishek Sharman. Iyer.Listing of Active Investors in the Education Sector IDG Ventures India www. control-oriented private equity fund with approximately $350 million of capital. com About us: India Alternatives is a Private Equity Fund. 1 Vittal Mallya Road Bengaluru 560001 Tel: 91 80 4030 0456 Other Office Locations: Palo Alto.7 billion in capital and has funded more than 500 companies since inception. Water Solutions. Infrastructure Ancillaries. Mumbai-400050. India Tel: 91 22 4238 2444 Fax: 91 22 2643 2604 Contact Person: Shivani Bhasin Sachdeva. Mumbai 400021 Tel: 91 22 6150 1111 Contact Person: Niren Shah E:
[email protected] About us: Norwest Venture Partners (NVP) is a global. CEO M: 91 98675 80509 T: 91 22 4238 2401 E: shivani. USA and Herzelia. multi-stage investment firm that manages more than $3.com Mumbai: 701/705 Dalamal House Nariman Point. .agrawal@india-alt. typically investing in 25-75 crores in mid-growth stage companies having turnover of more than 50-60 crores. Food Processing and Consumption Related Companies Norwest Venture Partners www.com Bengaluru: 15th Floor. Healthcare Ancillaries & Consumables.nvp. California. Concorde Towers UB City. Israel Mohan Kumar E: mkumar@nvp. VP (Investments) M: 91 98705 47047 T: 91 22 4238 2402 E: ashish.bhasin@india-alt. 36 Turner Road.Listing of Active Investors in the Education Sector India Alternatives Office Address: 301/302.com Ashish Agrawal. Vocational Institutes. Bandra (W). We are interested in Higher Education. Waste Management. 35 . Renewable Energy. com M: 91 98101 95222 Other Office Locations: 21 Lansdowne Place Flat No 4A/4B 4th Floor Kolkata . Delhi. Associate Director . Kolkata.com T: 91 124 334 5091 KPMG Transaction Services practice offers a suite of advisory services to private equity funds covering financial and commercial due diligence.400 011 Tel: 91 22 3989 6000 Fax: 91 22 3090 2210 Other Office Locations: Bangalore. Mathura Road.700029 Amrish Garg E:
[email protected] T: 91 22 3989 6000 About us: Nitish Poddar.Active advisory firms in the Education Sector KPMG India www. Mumbai . NM Joshi Marg. Kochi.com/in Office Address: Lodha Excelus Apollo Mills Compound. Private Equity and Corporate Advisory services 36 .com M: 91 99999 81321 About us: A boutique investment bank offering M&A. Ltd www. market and industry analysis. Chennai.mehta@sskmin. SSKM Corporate Advisory Pvt. and operational due diligence. Hyderabad.Advisory E: npoddar@kpmg. Mahalaxmi. financial model development. New Delhi – 110 065 Tel: 91 11 4670 8888 Fax: 91 11 6662 8889 Contact Person: Vikram Mehta E: v. Ishwar Nagar. Chandigarh.com Office Address: 145 Tribhuvan Complex. Transaction Services E:
[email protected]. Pune Contact Person: Aneesh Vijayakar. Executive Director. Bandra (E).Active advisory firms in the Education Sector Systematix Capital Services Pvt Ltd www.systematixshares. Ltd G2 A Platina.40051 Tel: 91 22 6704 8000 / 4228 7000 Fax: 91 22 6704 8022 Contact Person: Nikhil Khandelwal E: nikhil@systematixgroup. MumbaI . 37 . New Delhi Abhishek Khandelwal E:
[email protected] Office Address: Systematix Capital Services Pvt. Mumbai Jasola. Near Citibank Tower. Bandra Kurla Complex.in Other Office Locations: Fort.in We are looking for: Education companies in various stages of its growth path for their fund raising and M&A opportunities. The Venture Intelligence “Education Industry Package” includes: Quarterly Digest of PE and M&A deals in the Education Industry in a 38 .Education Venture List of PE/VC investments in Education during the previous yeat Education Companies ? information on Private Equity and M&A activity in the Education Industry. 39 . ventureintelligence.co.in Report Design & Printed by: www.getnoticed.India’s Largest Deal Information Bank www.in .