Private equity funds Hillhouse Capital and Permira, alongside Warburg Pincus, are some of the investors looking into the China business of Education First, a private tutorial school still held by Bertil Hult, the founder of the company.
With a portfolio that includes 300 schools across 60 cities in China, Education First’s China business is positioned towards the lucrative market in the world’s second largest economy, which is estimated to be worth more than a quarter trillion dollars according to LEK consulting.
Though Education First is still discussing which China assets are potentially available, the sell is expected to value the entity between $1.5 billion to $2 billion. Based on sources close to the deal, investors are keenly eyeing early stage development for the China market, which can command higher valuations as prepaid tuitions support operational working capital.
But while this segment commands greater investor interest, early stage education is not immune to regulation risks and erratic miscues from Beijing. Confusion over foreign investments into variable interest entities pushed valuations lower in late 2018.
Fading communication risks are renewing optimism in the space. China Yuhua Education Corporation announced the pending acquisition of Jinan Shuangsheng Education Consulting, paying RMB1.5 billion for the private higher education institution located in Shandong, for slightly more than 18 times its previous year’s net profit, according to the exchange filing. China Education Group purchased King’s Own Institute for A$128 million, at almost 15 times its net income based on the exchange filing.
King’s Own Institute, a tertiary level institution located in central Sydney, Australia could act as an early litmus test for future overseas deals going forward, allowing Chinese students into western markets, and vice versa. But this could also create another regulator overhang, justifying the higher valuations paid for China only education assets.
