REVIEW: Africa Ascendant-Mega Trends and Themes in Private Education Investment (PART 2)

We continue the review of the trends and opportunities in the African private education sector based on the Africa Ascendant: Mega Trends and Themes in Private Education Investment report produced by L.E.K Consulting.

Picking up from last week, we will be examining Africa’s distinct investment landscape and the characteristics that make it ripe for private education investment.

Given proven demand for education and attractive business model fundamentals, investment activity in Africa is already on the rise, as evidenced by the growth in size and number of deals in the education sector.

The number of deals has grown 24 times since 2004 to more than 70 deals, with deal value increasing 15 times (now standing at nearly $720 million for the four-year period 2014-2018).

The sector has seen increased participation from a range of private investors, including Africa-focused funds of bulge bracket investors (e.g., Actis, Carlyle, TA Associates, DPI and Helios) and Africa-based private equity funds and large operators.

Key Sectors: Core Delivery Receives Most Investment; However, There Is Traction In Other Sectors.

See trends below:

  • Core delivery sectors such as K-12 and higher education have seen the most deal activity. These two segments are typically the most scalable globally, with favorable business model characteristics.
  • The K-12 sector in Africa clocked up 30 deals with a cumulative disclosed value of about $326 million from 2014 to 2018. While large providers such as ADvTech and Curro have continued their consolidation of the mid-price and premium K-12 market, there have also been deals by financial investors such as Verod Capital’s investment into Oreon Education in Lagos and AfricInvest’s investment into ICS Ghana.
  • Similarly, the higher education sector racked up more than 20 deals worth about $140 million from 2014 to 2018. There have been a number of noteworthy acquisitions by large providers such as ADvTECH, Stadio, KMR Holdings (backed by DPI, MCP and Helios) and Honoris United Universities (backed by Actis).
  • In many emerging markets, technical and vocational education businesses face challenges in attracting demand and achieving scalability due to a lack of mandatory requirements for certifications or low employer recognition of certifications. However, with a robust qualification framework and policy push in markets like South Africa, TVET is now emerging as a more favorable sector for deal activity, with 13 deals and more than $110 million in investment. Carlyle’s investment in TVET business NOSA and Investec’s acquisition of Richfield are notable transactions in this space.
  • Given the lack of on-campus seats and significant demand for tertiary education, distance education offers an affordable, convenient and recognized alternative for degree-based education. In some markets, like South Africa, distance education represents as much as 40% of the total tertiary enrollments. The segment has demonstrated strong growth and has attracted investor interest in quality providers. Honoris United Universities’ investment in the South Africa-based Mancosa/Regent is a notable scale investment in this space.
  • The largest of the education deals included online education company 2U’s 2017 acquisition of GetSmarter, a South African company that provides online certification courses in partnership with top universities, for $123 million. This represents the growing interest of foreign providers as well as the emergence of technology-based models.

Key Regions: There Is Activity Across Regions With Southern Africa And North Africa Receiving The Highest Share Of Investment

See trends below:

  • Southern Africa leads the region in terms of total deal value from 2014 to 2018, followed by North Africa, where the sector is seeing deal activity across Egypt, Morocco and Tunisia. While East Africa and West Africa have also registered a string of recent deals, lower reporting of deal values leads to lower value of recorded deals in these markets.
  • While all regions are demonstrating deal activity and interest in private education, Africa is a large continent, and each region and country has its own nuances. The sectoral and competitive dynamics vary significantly, and this has a bearing on actionable investment opportunities in each sector, country and region. There are a number of notable activities and themes for key segments of education.

Regional Spotlight: Themes And Trends Across Regions

North Africa

In North Africa, healthy price points have resulted in scalability of education businesses (compared to rest of Africa). The K-12 sector has witnessed double-digit growth in segments in Egypt and Morocco, driven by demand for private and private international schools focused on education in English and French. Another growing sector is tertiary education, despite regulatory restrictions such as capacity constraints and price caps in countries such as Egypt.

The region has seen strong activity in mergers and acquisitions (M&A), for example Honoris United Universities’ acquisition of University Central in Tunisia as well as Université Mundiapolis and Ecole Marocaine des Sciences de l’Ingénieur (EMSI) in Morocco.

Other acquisitions include Helios, DPI and MCP’s investment in KMR and KMR’s acquisition of UIC Laureate (Morocco), as well as LCI Education’s acquisition of HEM Morocco and CI Capital Holdings’ investment in Taaleem (NUB) in Egypt. In Egypt, prior restrictions around foreign branch campuses have recently been relaxed; however these changes are still to materialize in the market.

Southern Africa

Major listed companies in the region (such as ADvTECH and Curro) are continuing to solidify their presence in both K-12 and Higher Education segments. Within K-12, premium segments are either consolidated or marked by legacy schools, with a shift in focus to large and high growth mid-market and budget schools. There has also been an emergence of new age mid-market and budget private K-12 such as Nova Pioneer, Spark, and Enko.

Within tertiary education, activity in M&A has continued, for example in Stadio Holdings’ public listing and continued acquisitions, Investec’s investment in Richfield, and ADvTECH’s acquisition of Monash South Africa from Laureate. There has also been strong demand for distance education by providers such as Honoris United Universities, Mancosa, and Regent. Demand has further been stimulated by continuous policy initiatives within the vocational sector through schemes such as YES and BEE.

East Africa

A notable trend in East Africa is strong growth in the K-12 segment, driven by an increase in affordability and demand for high quality schooling. The mid-price segment is experiencing high growth (as witnessed by investments from ADvTECH

in Makini, and Fanisi Capital in Kitengela, as well as Nova Pioneer’s expansion across campuses) while schools in the premium segment are consolidating their presence (such as GEMS’s recent acquisition of Hillcrest Schools) along with new school openings (such as Brookhouse Runda school opened by Inspired and Crawford Schools opened by ADvTECH).

Tertiary and vocational sectors have also witnessed high demand, resulting in program scalability. However price points continue to be low, with M&A activity at a nascent stage. Rwanda continues to be a hub for EdTech innovation.

West Africa

Within West Africa, Nigeria boasts the largest addressable market, however Accra and Ivory Coast are emerging as preferred hubs in the region. Demand for quality education has provided a strong basis for growth in the K-12 sector, which has also been attracting private equity investments (for example Verod Capital’s investment in Greensprings and Rainbow College, and AfricInvest’s investment in International Community Schools Ghana).

There is significant demand for tertiary education and vocational education in the region, however high unemployment levels have resulted in subdued growth in the tertiary sector. Foreign universities are entering via branch campuses, such as Lancaster University Ghana.

As a conclusion to this series, next week, we will be examining the trends and opportunities that place Africa in a unique position for private education investment.

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