M&A deals diversify education segment

Investors new to education are being urged to carry out due diligence like in any other sector. Photo: Le Toan

Cineplex and film producer Galaxy Media and Entertainment last month acquired a majority stake in local edtech startup Hocmai for an undisclosed amount, making its first foray into the sector.

“We have been looking for an opportunity in edtech for over a year. Hocmai has the largest market share in the grade 1-12 segment in online education in Vietnam,” said Luong Cong Hieu, CEO of Galaxy Media and Entertainment. “By investing in Hocmai, we believe the company will have more resources to continue to serve the increasing demand for online education in the country.”

At present, Galaxy is considering investing in other edtech companies covering kindergarten and K-12 to vocational training and higher education.

Founded 13 years ago, Hocmai has attracted four million students and 200 teachers with more than 1,000 courses and 30,000 lessons a year. In the online education sector for secondary and high school students, Hocmai has become a formidable contender.

In July, Myanmar Strategic Holdings Ltd., the independent developer and operator of consumer businesses in Myanmar and Vietnam, announced that wholly-owned subsidiary MS English 2 Pte., Ltd. has completed the acquisition of the entire charter capital of Wall Street English Llc. (WSE), a leading provider of English language training (ELT) services in Vietnam. WSE Vietnam caters to the premium ELT market, focusing exclusively on adult learning, and offers its services through a flexible and integrated blended learning solution that can be delivered entirely online.

As of April 30, WSE served over 6,000 students at seven centres located in Ho Chi Minh City and the neighbouring province of Binh Duong. The centres will continue to operate under 10-year franchise agreements with Wall Street English International on terms similar to those in place for Wall Street English Myanmar. For the 12-month period ending April 30, WSE Vietnam generated unaudited revenues of approximately $13.8 million and incurred a net loss of $1.4 million. As of that date, its gross assets amounted to $3.4 million.

In July 2019, Navis Capital Partners, a Kuala Lumpur-based fund managing a $5 billion portfolio, completed investment in Thanh Cong Education JSC, a high-quality Vietnamese private education platform operating in the south of the country. The value has yet to be disclosed.

The market also recorded numerous deals led by foreign funds in the field. Kaizen Private Equity, the specialised education fund manager in emerging markets, made a $10 million investment in education provider YOLA. Previously, Mekong Capital’s Mekong Enterprise Fund III, Ltd. also invested $4.9 million into YOLA for a minority stake.

Sweden-headquartered private equity firm EQT Capital Partners, through its subsidiary EQT Mid Market, has meanwhile poured an undisclosed amount into ELT company ILA Vietnam.

The World Bank’s International Finance Corporation (IFC) and Aureos Fund have invested $10 million in Vietnam USA Society English Centers, while TAEL Partners injected $10 million in Ivy Prep Education.

Seck Yee Chung, partner at Baker Mckenzie told VIR, “We expect to see growth in M&A in the education sector. Investors are looking for potential and broadly speaking, the education and training sector in general remains an area where families, companies, and individuals seem prepared to spend.”

Based on statistics by the Ministry of Education and Training, overseas funders have invested in the entire range of education service areas from K-12 and vocational to college education and language centres. While the establishment of institutions is subject to many requirements – such as legal licences and permits, and operational requirements such as per-student capital and minimum teaching experience – M&A deals are the chosen path for foreign investors to approach the market.

However, Chung noted that there are some challenges for investors to acquire local assets. Like any business, it is important to do a due diligence of the target and business, and also to understand if there are regulations or other factors that might put a dampener on the growth of the business. For example, whether there are any issues in getting approval bringing in personnel from overseas.

Last year, Nguyen Lan Phuong, another Baker Mckenzie partner based in Ho Chi Minh City, said that Vietnam’s education market was promising. “Vietnam’s World Trade Organization commitments in the education area, together with domestic education regulations, have laid a good foundation to bring in foreign investors,” she said. “This, coupled with its lifted restrictions on the enrolment cap of foreign-invested K-12 institutions makes Vietnam’s education sector become even more of an attraction.”

Phuong noted that the increasing population is further bumping up the appeal of the education sector. “The Vietnamese economy is switching from primary labour-intensive manufacturing to more services, so the education sector is front and centre as the need to upgrade the capacity of the workforce becomes more urgent,” she explained.