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Brookings Institution report

Africa still has the world´s lowest secondary school enrollment rates


Private equity bankers compare Africa’s potential with emerging markets such as Brazil, India and China, which have attracted significant investment into their education sectors.

Africa-focused fund Development Partners International was working on two opportunities in the sector, partner Eduardo Gutierrez said, and emerging markets firm Actis, which has made investments in Chinese and Brazilian education companies, also had its eye on the continent.

“Education is a really important sector for us globally,” Simon Harford, the Actis co-head for Africa, said. “Education in Africa needs to be funded and developed and advanced and we would love to play a part in that.”

So far, private equity education deals have been rare given the prevalence of small institutions, many started by entrepreneurs.

Actis, whose minimum investment size is $40 million to $50m, said one option was merging companies to create scale.

Harford said another option was to await organic scale.

Curro parent Curro Holdings, majority-owned by the private equity arm of South African investment group PSG, is one of the few examples of a private equity-backed education group in Africa. The only other South African listed education company is ADvTECH Group.

PSG chief executive Piet Mouton said the value of its 2009 investment in Curro had already increased five-fold. It could take anywhere from seven to 12 years for a new school to fill and make money, but when full it should generate core profit margins of up to 40 percent, he added.

“Anybody who wants to compete with us has got to have a thick skin,” Mouton said. “It’s a phenomenal model but you’ve got to be able to stomach a J-curve.“

Insatiable demand

For investors, typically multilateral institutions or impact funds that have social as well as financial motives, the appeal of education is that demand for schools is growing faster than incomes.

By 2020, 128 million African households would earn $5 000 a year or more, consulting firm McKinsey said, enabling them to spend half their income on non-food items. Africa’s middle class families – those earning $20 000 or more – outnumber India’s.

“That creates an insatiable demand, especially in emerging economies. It’s a demand that governments simply cannot meet,” said Robert Lytle, who co-heads Parthenon’s education practice.

“At least a solid half dozen” global private equity players were looking for opportunities in African education, he added.

Globally, the attention given to education as an asset class has soared in recent years. More deals, including private equity and mergers and acquisitions, have been done outside the US in the last five years than in the previous 15, according to Parthenon.

Brazil is home to some of the world’s largest publicly-traded education companies, partly owned by private equity firms. These include Anhanguera Educacional and Estácio Participações, which has seen its stock price double in the last year.

In India, $1 billion of private equity had gone into education in the last four years, said Sandeep Aneja, the managing director of Kaizen Private Equity, which wants to expand in Africa in the next three years.

South Africa’s Curro Holdings, whose share price has almost quadrupled since listing, sees huge potential in its back yard and is aiming for 80 schools by 2020 up from 26.

Academies like Curro Serengeti, where average fees are R3 000 a month, provide an alternative to often overcrowded state schools and pricier top-end independent schools.

Founder Chris van der Merwe said private equity backing had let the firm build schools faster than it could have done, taking the burden off stretched public resources. “For each school that we build we save the state about R60m,” he said. – Tosin Sulaiman from Reuters


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