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Johannesburg - It's the last day of term at Curro Serengeti Academy in Johannesburg and students have swapped their blue uniforms for their own clothes, but as they escape for the holidays there is no rest for the builders.
The school, which opened just over a year ago, is targeting 2 000 pupils in the next decade from around 900 now and is already building a huge auditorium and classroom extensions.
A growing demand for private schools like Curro Serengeti from a burgeoning African middle class is creating the ideal conditions for private equity deals in the continent's education sector.
Private equity firms can reap internal rates of return of between 25 and 30% if they can ride a long-term investment of up to 12 years and possible shifts in legislation unscathed.
"There are a lot of rich people in Nigeria, in Dar es Salaam, Nairobi, Accra, who would like their children to get a great education," one senior private equity executive said.
"It ranks way up in the hierarchy of needs for people who are making $5 000 a year. If we had the right partner we could put up 20 great private schools in African capitals in three years."
Investing in education has its challenges as building schools is costly and it takes a long time to generate returns.
Regulations in Africa tend to be relaxed, but there is still the exposure to possible sudden changes in legislation, said Karan Khemka of consulting firm Parthenon Group, who has seen some emerging market countries ban fee increases overnight.
"We've seen very tight regimes become very relaxed. We've seen very relaxed regimes go to ultra tight," he said.
More schools please
African countries need to invest heavily in education to develop a skilled workforce and reduce high unemployment.
Although the region has made progress in expanding school access in the past decade, it has the world's lowest secondary school enrolment rates, according to US think tank the Brookings Institution.
Private equity bankers compare Africa's potential with emerging markets such as Brazil, India and China, which have attracted significant investment into their education sectors.
Africa-focused fund Development Partners International is working on two opportunities in the sector, partner Eduardo Gutierrez said, and emerging markets firm Actis, which has made investments in Chinese and Brazilian education companies, also has its eye on the continent.
"Education is a really important sector for us globally," said Simon Harford, its co-head for Africa.
"Education in Africa needs to be funded and developed and advanced and we would love to play a part in that."
So far, private equity education deals have been rare given the prevalence of small institutions, many started by entrepreneurs.
Actis, whose minimum investment size is $40-$50m, says one option is merging companies to create scale. Harford said another option was to await organic scale.
Curro parent Curro Holdings, majority-owned by the private equity arm of investment company PSG Group [JSE:PSG], is one of the few examples of a private equity-backed education group in Africa.
The only other South African listed education company is Advtech Group [JSE:ADH].
PSG CEO Piet Mouton said the value of its 2009 investment in Curro has already increased fivefold.
It could take anywhere from seven to 12 years for a new school to fill up and make money, but when full it should generate core profit margins of up to 40%, he added.
"Anybody who wants to compete with us has got to have a thick skin," said Mouton. "It's a phenomenal model but you've got to be able to stomach a J curve."
Insatiable demand
For investors, typically multilateral institutions or impact funds that have social as well as financial motives, the appeal of education is that demand for schools is growing faster than incomes.
By 2020, 128 million African households will earn $5 000 a year or more, consulting firm McKinsey says, enabling them to spend half their income on non-food items.
Africa's middle class families - those earning $20 000 or more - outnumber India's.
"That creates an insatiable demand, especially in emerging economies. It's a demand that governments simply cannot meet," said Robert Lytle, who co-heads Parthenon's education practice.
"At least a solid half dozen" global private equity players are looking for opportunities in African education, he added.
Globally, the attention given to education as an asset class has soared in recent years. More deals, including private equity and mergers and acquisitions, have been done outside the United States in the last five years than in the prior 15, according to Parthenon.
Brazil is home to some of the world's largest publicly-traded education companies, partly owned by private equity firms. These include Anhanguera Educacional and Estacio Participacoes, which has seen its stock price double in the last year.
In India, $1bn of private equity has gone into education in the last four years, said Sandeep Aneja, managing director of Kaizen Private Equity, which now wants to expand in Africa in the next three years.
Curro Holdings, whose share price has nearly quadrupled since listing, sees huge potential in its back yard and is aiming for 80 schools by 2020 from 26 now.
Academies like Curro Serengeti, where average fees are R3 000 a month, provide an alternative to often overcrowded state schools and pricier top-end independent schools.
Founder Chris van der Merwe said private equity backing had let the firm build schools faster than it could have done otherwise, taking the burden off stretched public resources.
"For each school that we build we save the state about R60m," he said.
The school, which opened just over a year ago, is targeting 2 000 pupils in the next decade from around 900 now and is already building a huge auditorium and classroom extensions.
A growing demand for private schools like Curro Serengeti from a burgeoning African middle class is creating the ideal conditions for private equity deals in the continent's education sector.
Private equity firms can reap internal rates of return of between 25 and 30% if they can ride a long-term investment of up to 12 years and possible shifts in legislation unscathed.
"There are a lot of rich people in Nigeria, in Dar es Salaam, Nairobi, Accra, who would like their children to get a great education," one senior private equity executive said.
"It ranks way up in the hierarchy of needs for people who are making $5 000 a year. If we had the right partner we could put up 20 great private schools in African capitals in three years."
Investing in education has its challenges as building schools is costly and it takes a long time to generate returns.
Regulations in Africa tend to be relaxed, but there is still the exposure to possible sudden changes in legislation, said Karan Khemka of consulting firm Parthenon Group, who has seen some emerging market countries ban fee increases overnight.
"We've seen very tight regimes become very relaxed. We've seen very relaxed regimes go to ultra tight," he said.
More schools please
African countries need to invest heavily in education to develop a skilled workforce and reduce high unemployment.
Although the region has made progress in expanding school access in the past decade, it has the world's lowest secondary school enrolment rates, according to US think tank the Brookings Institution.
Private equity bankers compare Africa's potential with emerging markets such as Brazil, India and China, which have attracted significant investment into their education sectors.
Africa-focused fund Development Partners International is working on two opportunities in the sector, partner Eduardo Gutierrez said, and emerging markets firm Actis, which has made investments in Chinese and Brazilian education companies, also has its eye on the continent.
"Education is a really important sector for us globally," said Simon Harford, its co-head for Africa.
"Education in Africa needs to be funded and developed and advanced and we would love to play a part in that."
So far, private equity education deals have been rare given the prevalence of small institutions, many started by entrepreneurs.
Actis, whose minimum investment size is $40-$50m, says one option is merging companies to create scale. Harford said another option was to await organic scale.
Curro parent Curro Holdings, majority-owned by the private equity arm of investment company PSG Group [JSE:PSG], is one of the few examples of a private equity-backed education group in Africa.
The only other South African listed education company is Advtech Group [JSE:ADH].
PSG CEO Piet Mouton said the value of its 2009 investment in Curro has already increased fivefold.
It could take anywhere from seven to 12 years for a new school to fill up and make money, but when full it should generate core profit margins of up to 40%, he added.
"Anybody who wants to compete with us has got to have a thick skin," said Mouton. "It's a phenomenal model but you've got to be able to stomach a J curve."
Insatiable demand
For investors, typically multilateral institutions or impact funds that have social as well as financial motives, the appeal of education is that demand for schools is growing faster than incomes.
By 2020, 128 million African households will earn $5 000 a year or more, consulting firm McKinsey says, enabling them to spend half their income on non-food items.
Africa's middle class families - those earning $20 000 or more - outnumber India's.
"That creates an insatiable demand, especially in emerging economies. It's a demand that governments simply cannot meet," said Robert Lytle, who co-heads Parthenon's education practice.
"At least a solid half dozen" global private equity players are looking for opportunities in African education, he added.
Globally, the attention given to education as an asset class has soared in recent years. More deals, including private equity and mergers and acquisitions, have been done outside the United States in the last five years than in the prior 15, according to Parthenon.
Brazil is home to some of the world's largest publicly-traded education companies, partly owned by private equity firms. These include Anhanguera Educacional and Estacio Participacoes, which has seen its stock price double in the last year.
In India, $1bn of private equity has gone into education in the last four years, said Sandeep Aneja, managing director of Kaizen Private Equity, which now wants to expand in Africa in the next three years.
Curro Holdings, whose share price has nearly quadrupled since listing, sees huge potential in its back yard and is aiming for 80 schools by 2020 from 26 now.
Academies like Curro Serengeti, where average fees are R3 000 a month, provide an alternative to often overcrowded state schools and pricier top-end independent schools.
Founder Chris van der Merwe said private equity backing had let the firm build schools faster than it could have done otherwise, taking the burden off stretched public resources.
"For each school that we build we save the state about R60m," he said.
