From nursery to university: Emerging market investors buy into education

LONDON (Reuters) – Two decades after Yusuf Karodia launched Mancosa, a distance learning school to teach South Africans business skills, he sold up to UK private equity firm Actis.

From nurseries to exam tutoring and adult education, teaching businesses are booming as populations rise and cash-strapped governments fail to keep up with demand.

With 263 million children out of school worldwide, according to 2014 data from the United Nations, investors are keen to access a growing sector with few publicly-listed companies.

Karodia said Actis was one of a stream of interested private investors.

“We had about an overture a week to partner with someone,” he told Reuters.

Mancosa is now part of Actis’s expanding higher education portfolio in Africa. It has spent $275 million since 2014, investing in education institutes across the continent which it groups under the brand name Honoris Universities and plans to list on a stock market in the next two to three years.

Karodia, who will also get a stake in Honoris, says there is huge demand for education in Africa.

“Quality education – especially coming from the private sector – is going to play an ever increasingly important role,” he said.

The International Commission on Financing Global Education Opportunity estimates that international financing for education in low- and middle-income countries will need to increase from today’s estimated $16 billion per year to $89 billion by 2030.

Jetilde Carlos is a 22-year old final year finance student at the Varsity College in Cape Town, owned by Johannesburg-listed ADvTECH Group. Carlos missed out on a place at a state university.

“Its not that my parents had the money but they really wanted a better life for me. They didn’t want me to sit at home looking for job when I might not even find one,” she said.

“The degree is worth it in the end”  

Investors are keen for a slice of the market because the fee-paying structure guarantees a regular income stream. The sector is also relatively resilient to economic ups and downs as parents increasingly prioritize their children’s education.

“It goes with the whole consumer spending (trend) in emerging markets, and as income levels rise and there is more disposable income available what you’re seeing is the population is looking to spend in areas such as education,” said Patricia Ribeiro, an equity portfolio manager at American Century Investments.

Carlos paid a deposit of 25,000 rand…

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