Chinese investors are stepping up their hunt for education assets overseas as more Chinese students seek access to Western educational resources at home or abroad.
Private equity firm Citic Capital has submitted a bid for Study Group, according to two sources. Providence Equity Partners, a U.S.-based private equity group, is selling the Sydney-headquartered company, which provides language and preparatory courses for university students, for up to $1 billion, the sources said.
And Citic, in a consortium with Baring Private Equity Asia, is also nearing a deal to acquire Pearson Plc's language learning business Wall Street English (WSE) for $350-400 million. Citic Capital and Providence declined to comment.
Separately, Bright Scholar Education Holdings, backed by Chinese property tycoon Yeung Kwok-keung, is among the bidders for U.S. child care provider Learning Care Group (LCG). The deal could value the business at up to $1.6 billion, Reuters reported last month.
The moves are triggered by the continued rise in Chinese students flocking to study in Western countries, and as the growing middle class in the world’s second-largest economy looks for international-style education at home.
This is also bolstered by a traditional Chinese view that providing the best education available is the biggest priority for any parent. Investors, especially private equity firms, like education assets because they are cash-rich with stable income from prepaid tuitions and other fees, said a managing director at a Chinese private equity fund, who asked not to be identified.
"There is long-term visibility of the business. It's easy to understand," he said.
The latest deals, if successful, would significantly push up China's overseas investments in the sector. China's global education push has also been reflected in a series of listings in recent weeks in New York by RISE Education, which offers English lessons for kids in China, pre-schooling provider RYB Education and Four Seasons Education which runs mathematics classes.
The number of Chinese students studying abroad totalled 544,500 in 2016, up 4 per cent year-on-year and more than four times the number a decade ago, according to statistics from China's Ministry of Education.
Chinese students already make up the bulk of revenues for companies like Study Group and WSE, said Lin Feng, founder and chief executive officer at DealGlobe, a China-focused M&A advisory firm with offices in Shanghai and London.
During the past decade, the average disposable income of Chinese people has more than doubled, government statistics show. While families are already spending more on their children's schooling, China's decision in 2015 to allow people to have two children - ending 36 years of its "one-child policy" is expected to further boost demand for early and pre-school education.
Tapping the growth potential, Chinese investors, including companies, private equity firms and family offices, have snapped up education assets ranging from a pre-school education technology firm in Singapore, a professional training services provider in France and private schools in the UK, Thomson Reuters data show.
"This is really meeting the rigid demand from Chinese parents who care about kids’ education the most,” said Hou Yi, an executive director at Chinese private equity firm CDH Investments focusing on education and consumer sectors.
CDH last December acquired a controlling stake in Singapore-based Ednovation Pte Ltd, a pre-school educational technology firm. China now accounts for about 80 per cent of Ednovation's 2017 core earnings, up from 50 per cent before the deal, Hou said, adding deals in the education sector will remain strong and active in the next three to five years.
DealGlobe's Feng said his clients were most interested in parents' efforts to upgrade their children's education, scouting for overseas high-end learning services including pre-school institutes and boarding schools.
Vocational training services in particular are expected to grow strongly even if the Chinese economy continues to slow down as more people will want to seek to learn new skills as their current jobs are displaced, Feng said.
"The first thing after an acquisition is to build up the Chinese market," he said. "These overseas assets are not cheap, but domestic ones are even more expensive. Chinese firms can still find multiple arbitrage opportunities."
The $350-400 million valuation of WSE would represent more than 15 times its earnings before interest, tax, depreciation and amortisation (EBITDA), according to people close to the deal.
"Everything (for sale) is pricey these days and, when you have to spend money, you want to be in a defensive industry," said Samson Lo, head of Asia M&A at UBS. "The education sector will do well in either a good or a bad economy. It is also a cash business and there is exponential growth in China."
Still, China's overseas education investments have some way to go to catch up with the spending at home. In 2016, investors spent $2.5 billion on 50 acquisitions globally, of which only three deals were done overseas, according to Thomson Reuters data. Despite the potential outbound surge in education deals this year, domestic deal volume in the sector - at $863 million - was still more than double the outbound amount as of the end of October. - Reuters