PE Plows Into Asian Education Sector

SHANGHAI/SEOUL (Reuters) – Private equity firms, betting that Asia’s obsession with childhood education is recession-proof, are increasingly investing in the fast-growing private learning sector.

While the technology, media and telecom sectors that typically attract venture capital are vulnerable to spending cuts in a global downturn, many Asian parents would make other sacrifices before scrimping on their children’s education.

“To cut the budget for your child’s educational costs is the last thing many parents in China and Asia will do, due to the tradition and culture in the region,” said Andrew Qian, managing partner of advisory firm New Access Capital in Shanghai.

“So the education sector is a relatively safe area for investments,” said Qian, whose firm has advised on about 20 deals valued at more than $700 million in total since 2003.

Last month, British private equity firm Actis led a consortium investing $103 million in China’s Ambow Education, which targets middle-school students who aspire to a coveted place at a Chinese university.

In South Korea, private equity firm The Riverside Co became the top single shareholder in Wiz-Korea, a pre-school tutoring institute, with a 20 billion won ($15 million) investment, in a deal announced in September.

Last year, the Carlyle Group CYL.UL invested $20 million in Topia Education, which runs tutoring institutes in South Korea.

Asia’s education firms are keen to attract foreign capital to expand their share of markets where private training and education does not have a long history.

“They are not in fierce competition now, because the pie is growing, but they want to raise their market shares now with more capital before competition turns stiffer,” said Park Jong-dae, an analyst at HI Investment & Securities.

THE MOST IMPORTANT THING

Asian parents typically invest in their child in the hope and expectation their offspring will support them when they are old.

This relentless focus on education has triggered a boom in private supplementary education.

The northern Indian city of Kota, for example, attracts some 20,000 students to cram for entrance exams for the prestigious Indian Institutes of Technology; In Hong Kong, some highly paid tutors are minor celebrities.

In China, the Communist nation’s “one child” policy has further raised the stakes for many parents who place huge importance on schooling their often only child.

China’s education market grew to an estimated $143 billion in 2007 and there is still huge potential for the market to expand over the next few years, according to Actis.

In South Korea, the after-school tutoring service market reached 20 trillion won ($15 billion) in 2007, according to its National Statistical Office, or 2.1 percent of the country’s gross domestic product.

Foreign capital is estimated to account for less than 10 percent of that total.

Besides young students, experienced workers are also expected to go back to school to improve their professional or language skills during a global economic crisis that has already led to thousands of job cuts worldwide.

“Many people become unemployed during an economic crisis, so it’s time for you to recharge yourself,” said Ran Wang, chief executive of investment bank eCapital, whose clients include Google Inc (GOOG.O) and Microsoft Corp (MSFT.O) in China.

NO FAST EXIT

English language training is the most popular service in Asia’s private education sector, with a handful of schools, including China’s New Oriental Education & Technology Group Inc (EDU.N) listed in the United States.

Beijing-based Global Education & Technology Group, which prepares students for a British language exam, has said it plans to raise at least $100 million in a U.S. listing. SAIF partners, a private equity firm backed by Japan’s Softbank Corp (9984.T), is one of its investors.

Last year, an investment arm of insurance giant American International Group (AIG.N) reportedly invested $60 million in Avalon English, a major English language school in South Korea.

But education firms are not immune to market sentiment.

Shares in Chungdahm Learning Inc (096240.KQ), which runs English teaching institutes, have lost more than a third of their value since a late-June IPO that drew applications for almost 300 times the 16 billion won in shares on offer.

In September, South Korea’s Hansol Education, a domestic tutoring service targeting toddlers to high school students, said it would postpone its plan for an initial public offering of shares due to lower-than-expected valuations.

“New Oriental is a success story, but it also makes it more challenging for latecomers to tell an even more successful story when they want to go to the market,” said New Access’ Qian, referring to New Oriental’s 2006 IPO in New York.

($1=1327.9 Won)

By George Chen and Kim Yeon-hee – Analysis
(Editing by Tony Munroe & Ian Geoghegan)