With over 850 million of India’s population under the age of 35[2], India has the largest and youngest demographic with the future of the economy in their hands.

Education presents a potentially clear path to social mobility and economic equality for all generations. This ambition and strive for greatness has seen the younger Indian population looking to education as a means to a higher standard of living, the result of which has created a growth in education expenditure across the region over the last ten years[3].

India’s expenditure on education in the last 5 years

 

[4]

However, where one would expect investment growth to align with this growth in spend, this has not been the case. As demonstrated below, market expansion has far out-paced Private Equity investments in the education sector, creating potential for PE investors to capitalise on this disparity[5].

 

PE-VC Investments in Jan – Mar 2019

[6]

India could be seeing a shift in pattern however, where in the last 12-18 months there has been significant M&A activity occurring within the Indian K-12 programme space. With four key transactions in quick succession from global K-12 Majors and leading PE firms[7], K-12 deal activity has suddenly gained significant momentum and grabbed investor attention. The EdTech arena has also seen considerable uptake in investment, with investments being just short of USD 1 billion in both 2018 and 2019[8].

Emerging themes in the market

Regulation has a significant impact on investment within the education market, specifically in relation to K-12, however there are many misperceptions at the core of this understanding. According to Nishith Desai Associates (NDA), a researched-based international law firm, while it appears that India’s regulations in this space are prohibitive, a closer analysis indicates that governments are increasingly acknowledging the current K-12 structures and the requirements of private companies. We believe that this could open up the market to enhanced capital inflow and M&A activity.

Philippe Lagger, Chief Corporate Development Officer at Nord Anglia Education, shared a more global view of the opportunities within the Indian K-12 market. Philippe believes that due to the magnitude of the market and growth potential, the Indian K-12 space remains a strong area of attraction. While regulations remain a key consideration, investors are increasingly adapting to the requirements in the interest to gain access to this significant market.

EdTech in the classroom seems to be becoming more of a common theme within the market. Management consulting firm, L.E.K. Consulting, believe that parents across both developed and developing markets are not satisfied with the current education provision in place for their children. EdTech in the K-12 space could have a significant impact on the learning outcomes of students, and in markets like India and China, they seem to be more willing to increase their educational expenditure for the implementation of EdTech in the classroom.

Some schools in India have already started to adopt EdTech tools in the classrooms.  An Indian school chain with 420K+ students is successfully using technology to track teacher performance, measuring individual student progression, and striving to create a consistent learning experience[9].

With this increased desire to invest by parents, and with early signs of EdTech adoption in classrooms, we believe the K-12 space remains a largely untapped market for EdTech players in the segment. By raising awareness, there is potential for considerable traction within this market.

Impact of EdTech on the Education System

The global education space is witnessing strong investor interest. According to L.E.K. Consulting, EdTech investments have grown 5X, in terms of both deal value and volume in recent years[10]. The quantity of so-called, ‘mega deals’ (> USD 500M), now contribute to more than 59% of the deal values, this is compared to 29% in 2015[11].

This growing focus on improved learning and skills development has catalysed the emergence of EdTech, with more than 6000 EdTech companies originating across key markets such as China, India, Australia and the US – albeit all at different stages in their lifecycle[12].

Conclusion

Education in India has become an established key economic driver in the already fast-growing economy[13]. We believe that the high growth potential but lack of real capital investments, as outlined above, provides an exciting market for development. So what should investors look out for?

  • EdTech has emerged as a fast growing segment of the education sector across the entire spectrum
  • With the nation’s under-35 generation keen to develop and grow using education as a key tool, supplementary learning e.g. online degree courses and online skill enhancement courses are emerging as key growth segments
  • Indian K-12 is fast emerging from the shadows of regulations and is expected to generate significant interest from both financial and strategic sponsors

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