The Investment Banking Department at Kuwait Financial Centre “Markaz” said that Kuwait’s education sector has witnessed a strong interest from investors over the past few years, which has mainly stemmed from the sector’s categorization as a defensive one, in addition to the increased shift in parents’ preference towards private education for their children. Existing education sector players have worked to expand their portfolio of schools by either acquiring additional schools or establishing new ones, institutional investors who had no prior exposure to the sector are acquiring stand-alone schools or stakes in educational companies, and family offices who invest in a number of different sectors are adding education sector assets to their portfolios.
Sector Overview
As of the 2017/2018 academic year, the number of private schools in Kuwait amounted to 551 schools (40% of the total schools) according to the Central Statistical Bureau with a collective enrollment of 266,621 students (41% of the total students). Some of these schools are non-profit schools. Kuwaiti students represent 27% of the total student population in private schools. Foreign schools (ex. American, Bilingual, English, etc.) make up 68% of the total number of private schools in Kuwait, followed by Arabic schools at 32%. Tuition fee increases in the schools are usually capped at 3% annually; however, such increases have recently been halted.
Major Players
The largest owners and operators of private schools in Kuwait include Al Jeri Holding, Al Faisal Educational Establishment Company, and Al Rayan Holding amongst others. Al Jeri Holding has a portfolio of 20 schools including Bilingual, English, Arabic, Pakistani, Indian, Filipino, and Special Needs schools. Al Faisal Educational Establishment Company has a portfolio of 10 schools including Bilingual, Pakistani, Indian, and Filipino schools. Al Rayan Holding has a portfolio of five schools including Indian, Pakistani, Arabic, and English schools. Each of the respective major players has built their portfolio of schools by establishing the schools themselves, acquiring schools from motivated sellers, or both.
M&A Activity
The sector has witnessed a number of M&A transactions over the past few years with Boubyan Petrochemical Company’s acquisition of a majority stake in Educational Holding Group being the largest amongst them. Boubyan had first acquired a 53% stake in Educational Holding Group during Q2 2017 for $129 million, later increasing its stake by 25% through a mandatory tender offer during Q4 2017 for $63 million. During 2016, Osos Holding Group sold Kuwait British Educational Services Company and Al Marefa Exemplary Company for Educational Services for $122 million. Al Sayer Group acquired a 45% stake in Al Razzi Holding Company during 2017 for $89 million, which owns a 55% stake in Sama Educational Company (the owner and operator of American Creativity Academy). Boubyan Petrochemical Company acquired a 14% stake in Nafais Holding during Q4 2015 for $26 million, which is the owner and operator of Gulf English School and A’Takamul International School. Al Fay Kuwait Real Estate Company later acquired a 17% stake in Nafais as well for $54 million during Q4 2016. Hong Kong-based Nord Anglia acquired The British School of Kuwait (BSK) in 2017, representing an international education provider’s interest in a well-established Kuwait-based school. Also, a diverse Kuwait-based family office had acquired a controlling stake in the American School of Kuwait (ASK) a few years ago.
Key Factors to Consider in Acquiring a School
The land that houses each of the respective schools is usually rented from the Ministry of Education (MOE), Ministry of Finance (MOF), private parties or owned by the school’s owners. Land rented from MOE or MOF is the most favorable as rent is nominal and lease periods are usually longer than those undertaken with private parties. Renting land from private parties is relatively expensive and can have a significant impact on a school’s profitability.
The shift towards private education has increased the demand for existing schools resulting in enrollment waiting lists for some of them. New schools are also entering the market and others are under construction, which has led to sufficient supply. Going forward, large well-established players with a strong brand name are expected to continue their positive performance as they usually have long waiting lists and enjoy a high degree of brand loyalty. New schools in the market will face difficulty in filling capacity due to the sufficient supply in the market and lack of a strong brand name.
Schools that predominantly focus on lower-income expatriates and lack strong brand names or affiliations are expected to face a reduction in enrollment. As such, investors are expressing a higher interest in schools with a strong Kuwaiti population.
Overall demand for the sector is expected to continue in the foreseeable future, however investors should selectively pick which schools to acquire given the general market dynamics.
###