CPPIB inks deal to get big slice of education market

Partnership with Nord Anglia sets stage for consolidation of private schools

The Canada Pension Plan Investment Board is taking a stake in company that runs international private schools with an eye to consolidating the fragmented global market for schools that serve the children of expatriates.

The US$4.3 billion deal will see CPPIB and partner Baring Private Equity Asia (BPEA) privatize Nord Anglia Education Inc., which runs dozens of schools from Switzerland to Cambodia.

Nord Anglia was taken public in 2014 by BPEA, its majority shareholder; under the new private structure, the partners plan to bring additional schools into the fold, according Deborah Orida, head of private equity in Asia for CPPIB.

“About 85 per cent of the market is still single operators,” she said, adding that Nord Anglia Education has significant growth prospects as “the leader within that market.”

Orida said the expat community is important, but noted that local students make up about one-third of the population of Nord Anglia’s 43 schools in 15 countries that also include Thailand, the Czech Republic, the United Arab Emirates, and the United States.

“People around the world, particularly in emerging markets, (are) getting richer and wanting to spend on high-quality education. It’s got a great long-term demand (profile),” she said. “What we see is, once an international school develops a good reputation in these international markets … the local students want to go to the school as well.”

One of the schools in Switzerland posted tuition charges on Nord Anglia’s website of 27,300 Swiss Francs for students in grades 1 through 5, and 35,700 Swiss Francs for students in Grade 11 or 12. A Swiss Franc is worth about $1.37. Several other schools don’t list tuition or boarding costs.

The current crop of schools has a retention rate of 98 per cent, excluding relocations and graduations, which Orida said gives the Canadian pension fund comfort that the investment will be resilient even in changing economic times. “Spending on schooling for your kids in kindergarten to Grade 12 is probably one of the last things you pull back on,” she said.

CPPIB did not disclose the size of its investment in Nord Anglia. Orida said terms of the transaction, which includes the repayment of debt, would be disclosed when the deal closes.

The equity, which BPEA controlled through a 67 per cent stake before the transaction announced Tuesday, has an implied valued of approximately US$3.5 billion, she said.

The Nord Anglia Education deal is the first transaction where CPPIB is a lead investor with BPEA, Orida said, noting that the Canadian pension fund got to know the private equity firm as a result of prior investments in funds it manages and through some small direct investments.

BPEA, one of the largest independent alternative asset management firms in Asia with total committed capital of more than US$10 billion, has been an investor in Nord Anglia since 2008.

The education firm was founded in 1972, and has forged a series of partnerships with institutions including The Juilliard School of arts, the Massachusetts Institute of Technology and King’s College London to create curriculum.

CPPIB’s Orida said the plan is to pursue more such partnerships as additional schools are added to the group.