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Invest for the future, and make a healthy return on Education businesses

By AAFM International

01 April, 2007

It’s rare these days that investors can find something that has the character of something almost philanthropic and yet provides very healthy returns, but opportunities in the education and training sector are now providing just that. Many successful businesses in the education and professional training fields are now showing very significant growth and returns. Such growth is based on a shift in many economies away from labor and manufacturing operations to human and intellectual capital platforms. Investors globally are welcoming such opportunities as they feel a sense of well-being when investing in positive opportunities for the future of the community.

Professional training and events organizations are coming back into vogue in capital markets also, with T&F Informa plc acquiring IIR’s operation, a well known training and events business in the UK, Middle-East and elsewhere, for a disclosed US$1.4 Billion. Universities in the United States such as Harvard, Stamford and others are now becoming more focused on the Executive training markets because of its lucrative revenue streams and low cost operations, and others such as University of Phoenix have made their online capability a force to be reckoned with. Private training companies such as Forbes and FT, along with professional associations like the AAFM (www.aafm.us), CFA Institute (www.cfainstitute.org), and CPA (www.cpaaustralia.com.au) are also getting into the act.

 

What’s driving Regional Growth in Training and Education?

In the Middle-East with GDP growth expected largely to remain high due to high oil prices and strong economic factors (Abu Dhabi, Doha and Dubai alone expect GDP of 7% or greater in 2007 – source: Zawya.com), businesses will need to invest heavily in training to remain competitive. Global competitors are entering the markets with strong internal capabilities and skilled managers, but they also are aggressively in pursuit of new resources with the right skills to grow their local footprint. For individuals looking to upgrade their skills and their pay packets, training and professional certification will play a big role in staying relevant in the growth economies of the GCC and beyond. Many training companies in the Gulf, however, have traditionally been under capitalized and have thus focused on the low-end markets, so investment is required to position them towards greater revenue opportunities through larger numbers and moving toward corporate sectors.

Education Funds and PE investment 

So where can investors look to invest? Funds such as the US-based Baron Asset Fund, are increasingly taking positions in education businesses. Baron states in their SEC reporting that “…of current interest [is] education, because the government says that 80% of the jobs available [post] the year 2000 will need training beyond high school and high school graduates will increase 25% in the next five years;”. Of course, there are specific listed companies dedicated to training such as DeVry, Learning Tree, Education Management, and New Oriental Education & Technology Group, but other Private Equity opportunities abound. In terms of results, DeVry surprised investors in Q2 of 2006 with a 44% jump in enrolments and year-on-year revenue growth of close to US$20m (10% increase on 2005 earnings.) DeVry’s shares lifted 19% after their financial results were released, catching many investors off-guard. The China-based New Oriental Group (NYSE:EDU) has boosted its share price 70% in the last 12 months, and is now looking to expand beyond it’s original borders of the mainland market.

While options for investment in the Middle-East are somewhat limited, Private Equity placements in individual training centers and for-profit professional trade associations are an attractive option for the more adventurous investor. Investment houses and funds in the region are now seriously looking for Private Equity placements in this growth area, so it won’t be long before we see a select group of players building portfolio in this domain.

Which training businesses make good investments?

So which training businesses make good investment opportunities? In the Middle-East pick those linked not just to the oil and gas sector, but those linked with service industries like banking, logistics and hospitality, and don’t forget hot areas like construction and project management. While public training centers offer high visibility, they also have higher marketing and overhead costs, so look for those organizations that include corporate training practices or consultative/bespoke offerings. Trade associations, while normally being focused on specific industry sectors, also offer larger events and maintain a ‘captured’ market with recurring revenue streams through strong membership databases, offering stable revenue streams over time and strong growth potential if well managed.

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