Money talks: major private investments in education reflect expectations for further growth ahead

Private equity firms - private-sector companies that provide capital in exchange for equity ownership - have continued to make significant investments in education over the past year. In fact, 2013 was bookended by major investment transactions that drew headlines around the world and called attention to the fact that investors are taking a greater interest in key education sectors. This is partly a function of opportunity and reflects investor expectations for significant growth in education markets, especially where that growth is driven by rapidly expanding global economies or by new models for education. However, increased investment activity in education is also partly a response to the public-sector pulling back in some areas.

As public-sector budgets get tighter, educational administrators are under more and more pressure to find new ways to do more with less, and that opens the door to a wider field of public-private partnerships.

found 266 private equity firms in the US alone with investments in education. These firms have broad holdings in different aspects of K-12 or higher education ranging from direct investments in institutions or schools, education services (e.g., administrative services, marketing, recruitment), education technology, educational content, or professional training. Tracking US equity investments in education by investment type. Source: Private equity for education Included in that wider field of nearly 300 private equity investors are 12 major US players - including Leeds Equity Partners, Kaplan Ventures, and Education Growth Partners - with an exclusive focus on one or more types of education investment. Some of these specialist firms, such as Leeds Equity, take a broad approach to investing in the sector, with holdings ranging from schools to education technology or services. Others, such as Rethink Education or ImagineK12, are more focused still, whether in education technology or other niche areas. For example, Leeds Equity made the news early last year when it paid US $105 million for a 25% stake in INTO University Partnerships. The new capital provides INTO with a means to fuel further expansion in international markets, technology, and to build additional capacity in collaboration with its university partners. “Today's higher education marketplace continues to face significant challenges driven by increasing budgetary constraints,” said INTO founder Andrew Colin. "Through public-private partnerships, there is a unique opportunity to meet the evolving and increasingly complex needs of universities and their students.” For its part, Leeds now has a stake in a growing business and a business model that it believes can deliver substantial returns. “In an era of soaring demand and declining public funding, INTO, working with its global network of world-class universities, is a strategic enabler,” adds Carter Harned, Managing Director at Leeds Equity Partners. A similar calculation led the International Finance Corporation (IFC), a member of the World Bank Group, to take a US $150 million position in Laureate Education last month. Formerly known as Sylvan Learning Systems, and previously one of the largest K-12 tutoring services in the US, Laureate rebranded in 2004 and shifted its focus to international education, kicking off a series of acquisitions of private-sector institutions in different markets around the world. Today, Laureate operates more than 65 institutions in 29 countries, often with a focus on career-oriented programmes. “This investment underscores IFC’s long-term commitment to supporting education with strategic clients that have the ability to develop much-needed job-market skills,” said Rashad Kaldany, IFC Vice President for Global Industries. “We look forward to continuing our partnership with Laureate to expand access to career-oriented education in emerging markets with strong growth potential in Latin America, the Middle East, and Africa.” Where INTO has found opportunity in a strategic challenge for higher education institutions, Laureate has set its sights on rapidly growing education markets abroad, and both are clearly attractive to private investors. Our recent feature on Nigeria highlighted the role of private investment in K-12 education in this booming education market. And a blog post from OpenEqualFree.org picks up the theme in noting:

“A rapidly emerging middle class is becoming prominent in Africa. Due to this shift in social demographic, schools in countries such as Nigeria are preparing themselves for a new influx of students willing to pay their way towards attaining a quality education.”

Tech fever

The same rapid growth that characterises many emerging global markets is also true of the burgeoning field of education technology. The “ed tech” space has also seen considerable investment activity of late, including from major education providers and publishers that are investing heavily in new technology-enabled services and products. A recent Education Week report points to the role of education leaders, such as Kaplan, Pearson, and McGraw-Hill Education, in incubating new education technology firms. Each of these larger firms have been acquiring technology start-ups in recent years in a bid to keep pace with changing curriculum models, pedagogy, and market conditions in both K-12 and higher education. A related post on the PandoDaily blog notes that larger investors in education technology are taking the additional step of creating incubators for new start-ups as well: “Big for-profit education companies have noticed the baby startups creeping into their space. In response, instead of trying to squish them fee-fi-fo-fum style, these companies have introduced accelerators to work with them. This year, Kaplan introduced a TechStars-partnership accelerator; Pearson teamed up with Washington-based accelerator 1776; and McGraw-Hill announced an upcoming programme with an as-yet-unnamed university to mentor and fund education startups.” As these examples reflect, expansion and adaptation through acquisition - investing in either a new or established institution, technology, or service provider - is a tried a true strategy across education. The volume and variety of investment activity in education reflects as well the dramatic expansion of international markets, the emergence of new learning models, and the firm expectation among large investors of big returns in the future.