KKR, Apollo fuel rush of private investment into Asia’s schools

[SINGAPORE] Private money is pouring into schools in Asia as investors seek to turn a profit on the growing demand for quality education.

The booming market is increasingly catching the eye of financiers such as Apollo Global Management and KKR. They have bought stakes and lent to school chains in a bet that a growing class of upwardly mobile families will allow school operators to expand.

Investment in the sector is rising, despite lacklustre growth in the region’s overall private equity volume since 2021. Excluding China, firms closed US$6.4 billion of education deals across the Asia-Pacific last year, 25 per cent above the year prior and more than double the volume of six years earlier, according to data compiled by LEK Consulting.

“Some of the groups coming in to buy schools don’t just buy and hold. Many expand capacity, build new campuses and expand the offer in the schools they have bought,” said Ashwin Assomull, head of the global education practice at LEK Consulting. “We expect investment to continue at a very strong pace.”

Fresh funding is helping schools expand into new markets. When Global Schools Group opened its first school, it was a humble operation, teaching 48 students out of a nondescript building in Singapore’s Mount Sophia neighbourhood.

Over the course of the last two decades, and with the backing of Apollo since 2021, it’s grown into a 45,000-student behemoth with campuses across Asia. Earlier discussions on the sale of a minority stake valued the firm at over US$1 billion.

Apollo first invested in 2021 and upsized its bet in 2023. Its bespoke financing matched the longer earnings timelines that are typical in school investments, said Arjun Temurnikar, the group’s director of growth and investments. They are “patient capital with longer horizons”, which gave the group more flexibility than a bank loan, he said.

The US firm also advises on capital structuring, M&A and planning. Since Apollo’s initial investment, Global Schools Group has completed nine acquisitions and expanded in places such as Cambodia, the Philippines, and Malaysia.

In another case, private equity group EQT reinvested in private school operator Nord Anglia Education after selling a stake in March to return US$5.4 billion to investors. The group recently added a third school in Thailand to its portfolio of over 80 schools, and plans to open campuses in the Middle East, the US and emerging Asian markets.

Private credit is also helping fuel the sector’s growth. Traditionally, schools mostly tapped equity or banks for funding. But as the industry matured and private equity bought more assets, “schools started requiring more differentiated types of financing”, said Abhishek Tiwaari, head of leveraged finance, infrastructure financing, and fund financing for Asia ex-Japan at Nomura Holdings.

One example is XCL Education, a school owner and operator backed by private equity firm TPG which obtained a US$400 million private credit loan in May to refinance its existing debt. And Vietnamese conglomerate Vingroup is seeking a private credit loan of around US$300 million to purchase KKR’s stake in its education subsidiary, Vinschool.

“Private credit funds like to finance schools because it’s a robust business model with growing revenues underpinned by increasing student enrolment and steadily increasing fees,” said Ali Abbas Alam, head of Asia private credit and debt capital markets at Jefferies Financial Group.

Thin assets

But the flexibility of private money comes with a price. Private debt interest rates are typically higher than those offered by traditional lenders. Of course, if things go south, schools usually have fewer hard assets than other sectors, dimming the prospects for recovery. Not to mention the potential reputational issue for lenders who need to foreclose on a school.

There’s also looming regulatory risk. In 2021, the Chinese government launched a sweeping clampdown on its private tutoring sector, banning them from providing for-profit classes on school curriculum subjects. The high-profile campaign, known as “Shuang Jian” in Mandarin, or “double reductions”, drove legions of companies into the red and wiped billions of US dollars off the market value of listed tutoring firms, resulting in tens of thousands of layoffs.

And in the UK earlier this year, the government introduced a value added tax of 20 per cent on private school fees, pushing up costs and causing dozens of schools to close.

“No business is immune to cycles, pandemic, or major changes in regulation,” said Nomura’s Tiwaari, who says he is looking closely at factors such as cash flow visibility, sustainability and consistency.

Rising demand

Rising incomes and demand in places such as South Asia have spawned a flurry of new school operators, as well as tutoring and ed tech companies. Families have sought alternatives due to a culture of highly competitive exams and dissatisfaction with public school systems. That’s driven students in droves to private schools at a rate higher than any other region.

The largest economies in South-east Asia have seen per capita incomes triple in the last twenty years. And about 38 per cent of students from low- and middle-income families attend private primary schools in South Asia, nearly double the share two decades prior, according to Unesco data and a report by the agency, which called for closer monitoring of educational quality.

Across the globe, international school operators plan to open 297 schools, with about 72 per cent of them slated for Asia, according to a report by ISC Research, which provides data on international schools. Vietnam, for instance, added 359 international schools in the five years to 2024, an increase of 24 per cent.

With that level of growth, some have wondered if parts of the market are getting too crowded. BK Gan, president and CEO of private international school group Taylor’s Schools, has been on the lookout for schools to buy in Vietnam and Thailand after receiving an investment from KKR in 2021.

“If you are not careful, it could be looking like its saturated at this point of time,” Gan said, speaking in an interview. “But our interest in those countries is because we are familiar with them.”

SJ Lim, managing director and portfolio manager of Asia private credit at KKR, who oversaw the investment in Taylor’s Schools, said that the firm was drawn by the growth potential and the stickiness of students, who are inclined to stay in the same school throughout their academic career.

“There is a consumption story behind education, as growing middle class have more disposable income,” Lim said. “It’s discretionary spending, but high in desirability.” BLOOMBERG