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JUNE 2011

Contents

Page No.

Executive Summary PE/VC and M&A in Education - What the Data Says What PE/VC Investors Think - Survey Results Private Equity in the Indian Education Sector - Opportunities and Challenges PE Investment in Indian Education Through The FDI Route - Opportunities, Challenges and Innovative Structures Investment Opportunities in the K-12 Sector in India - Myths and Reality Vocational Education - The Time is Nigh! Issues Facing the Education Investments - The Trilegal View Listing of Active Investors in Education Listing of Active Advisory Firms in Education

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Executive Summary
Nitish Poddar and Aneesh Vijayakar of KPMG set the tone for the report in an article highlighting the opportunities and challenges facing Private Equity investors in Education. They point out how the demand-supply gap, higher spending by consumers, superior quality perception of private sector offerings and government reforms, are set to drive growth of the industry. They highlight regulatory hurdles, need for complex structuring, lack of exit routes and shortage of management & faculty talent as key constraints for making investments. Private Equity & Venture Capital investors surveyed by Venture Intelligence for this report chose Vocational Education and Test Preparation companies as among their favourite sectors within the industry. These were followed closely by Educational Technology and Tutorial firms. Investors participating in the survey were split almost evenly on the question of investing in highly regulated sectors. The optimistic investors feel that K-12 especially, given the supply-demand gap, is very attractive in terms of scalability of business potential and its ability to absorb significant amounts of capital. The naysayers feel the lack of certainty in the government's approach to de-regulation poses too great a risk to PE investments in these sectors. As part of their interviews in this report, entrepreneurs behind two Education companies - one PE-backed and another VC-backed share their experience in tapping this form of capital. Pramod Maheshwari of Career Point Infosystems advises fellow entrepreneurs to treat the typical constraints accompanying PE funding (in terms of financial reporting, MIS, etc.) in a constructive fashion since they create a foundation for the company to take a big leap. Uma Ganesh of Global Talent Track points out why it is crucial for entrepreneurs to define their core business model very clearly and to have on board capabilities for meticulous execution before approaching VC investors. Karan Khemka of The Parthenon Group emphasizes how, given the scale and logistical complexity of the market, K-12 businesses need solid planning targeting geographies and price points to support rapid and profitable growth. He advises investors to choose their markets cautiously and after careful data-driven analysis. Abhishek Sharman of India Equity Partners makes a detailed case for why the timing is now appropriate to create businesses with large scale in the vocational segment. He also highlights the key factors that will determine success of such ventures. In their article, Siddharth Raja, Neela Badami and Sindhushri Badarinath of the law firm Narasappa, Doraswamy and Raja, provide an overview of the constitutional and regulatory frameworks governing the sector and the challenges they throw up for PE investments. The authors also outline the innovative structures being used by investors to work around the regulatory bottlenecks in the formal education sectors. In her interview, Kosturi Ghosh of Trilegal throws light on some of the key risks that PE investors should watch out for when making investments in Education companies and how best to mitigate them.

Private Equity and M&A in Education


What the data shows

PE Investments in Education - By Volume


Services to K-12
7% 7% 5% 5% 9% 9% 9% 22% 12% 15%

Test Prep Higher Education Vocational E-Learning Online Services K-12 Pre School & Day Care IT Training Others

*Period FY08 - FY11

PE Investments in Education - By Value


Services to K-12
2% 2% 4% 6% 6% 21%

Test Prep Higher Education Vocational E-Learning Online Services


17%

13%

K-12 Pre School & Day Care

14% 15%

IT Training Others

*Period FY08 - FY11

PE Investments in Education

200 180 160 140 120 100 80 60 40 20 0 FY08 FY09 FY10 FY11

25

20

15

10

PE Investments in K-12 Service Providers

60 50 40

7 6 5 4

30 3 20 10 0 FY08 FY09 FY10 FY11 2 1 0

PE Investments in Test Prep Cos

60 50

4.5 4 3.5

40 30

3 2.5 2

20 10

1.5 1 0.5

0 FY08 FY09 FY10 FY11

PE Investments in Higher Education

70 60 50 40 30 20 10 0 FY08 FY09 FY10 FY11

3.5 3 2.5 2 1.5 1 0.5 0

PE Investments in Vocational Training

50 45 40 35 30 25 20 15

8 7 6 5 4 3 2

10 5 0 FY08 FY09 FY10 FY11 1 0

Top PE Investments in Education


Company Manipal Universal Learning IL&FS Education and Technology Services Excel-soft Technologies ITM Group Everonn Education FIITJEE Sector Distance Learning Education Services E-learning Tertiary & Executive Education Education Services Test Prep Amount (US$M) 43 37 31 24 23 21 Investors PremjiInvest India Equity Partners DE Shaw Navis Capital New Vernon, Others Matrix Partners India Date Feb-10 Jan-10 Apr-08 Jul-09 May-08 Jul-09

Source: Venture Intelligence PE Deal Database; FY08 - 11 by Investment Size

M&A in Education
M&A Deals in Education - Sectorwise

Vocational Services to K-12


8% 21% 17% 4% 4% 29%

Test Prep Higher Education

17%

Pre School & Day Care K-12 Tutorials

*By Volume. FY 08-11

M&A Deals in Education - Yearwise

8 7 6 5 4 3 2 1 0
*By Volume. FY 08-11

FY08

FY09

FY10

FY11

M&A in Education
M&A Deals in Education - By Type

75%

Domestic
8% 17%

Outbound Inbound

*By Volume. FY 08-11

Top M&A Deals in Education


Target Co. Mother's Pride Acquirer AEZ Group Pre-school University (Medical) Tertiary & Executive Education Sector Amount (US$M) 100 80 24 20 17.5 50 55 Stake (%) 50 Date May-09 Dec-08 Jul-09 Dec-08 Jun-09

American University of Antigua Manipal Education Group ITM Group Princeton Review K-12 Education Arm IndiaCan PE Firm(s)

Core Projects and Technologies Education Services (K-12) Pearson Vocational Training Biz

Source: Venture Intelligence PE Deal Database; FY 08 - 11 by Investment Size

What PE/VC Investors think .


Here are the key highlights of a poll conducted among Private Equity & Venture Capital firms for this report. Fund managers from about 35 firms participated in the poll. Investors chose Vocational Education and Test Preparation companies as among their favourite sectors within the industry. These were followed closely by Educational Technology and Tutorial firms. Interestingly, the highly regulated K-12 sector scored over Play Schools in terms of attractiveness to investors.

Most Attractive Sectors for Investments


Vocational Education Test Preparation Tutorials Education Technology K-12 Education Play Schools Services to Educational Firms Distance Education Content Services Higher Education Day Care Centers

Language Training
0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00

How Investors Rated Each Sector


80%

60%

40%

20%

0%

20%

40%

60%

Services to Educational Firms

K - 12 Education

Distance Education

Higher Education

Test Preparation

% Voting 5 or Less

Education Technology

% Voting more that 5

10

Vocational Education

Language Training

Day Care Centers

Content Services

Play Schools

Tutorials

Apart from the ones featured in the table, other sectors that some investors polled suggested might be of interest included E-learning and content development, Finishing courses, Education oriented toys & games and Teacher training.

Will investments in highly regulated sectors (like K-12 & Higher Education) increase?

48.6%

Yes No

51.4%

Investors participating in the survey were split almost evenly on the question of investing in highly regulated sectors. The optimistic investors feel that K-12 especially, given the supplydemand gap, is very attractive in terms of scalability of business potential and its ability to absorb significant amounts of capital. These investors believe that regulatory issues are bound to be relaxed in the long term and, in the meanwhile, they can be sufficiently addressed by creating efficient investment structures. The naysayers feel the lack of certainty in the government's approach to de-regulation poses too great a risk to PE investments in these sectors. And also that the structures used to extract profits into private companies might not survive a challenge in the courts. Given that there is enough scope in the non-regulated sectors, they would rather steer clear.

Apart from regulatory aspects, investors highlighted finding credible promoters, long gestation periods (in K-12), lack of ventures with sufficient scale, over-crowding in the ancillary sectors, real estate issues (particularly for old schools/colleges) and talent availability (especially among the faculty) as other challenges in making investments in the Education space. Some investors also fear that the growth cycle is nearing the peak in the tutorial and test preparation sectors.

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Entrepreneur Interview

Pramod Maheshwari Chairman & Managing Director Career Point Infosystems

Funding: The Kota-based Career Point had raised Private Equity capital from Franklin Templeton PE in July 2009 and had a successful IPO in September 2010. Venture Intelligence: Why did your company choose to go in for PE financing? Pramod Maheshwari: From our company's perspective we were at the growth stage and there were two things in our mind: one was to raise growth capital and two was to get visibility and the validation of valuation. If a third party like a PE/VC investor comes in and validates your valuation, then that gives confidence to subsequent investors (including public market investors). Once a PE investor comes in, you get into the radar of people who are tracking companies in your sector and that opens up opportunity to raise additional capital if and when you require it. VI: What would your advice be to other education entrepreneurs who are considering this kind of financing? PM: The most important thing is to focus on the business plan and raise money to the extent it is required. Second, once you have raised capital, treat it very carefully and as if you had invested your own money. - i.e., don't start taking uncalculated risks. There is also reservation among entrepreneurs that the investors who come on board will put various kinds of restrictions, but I feel that these restrictions are good to create a foundation for the company to take a big leap. Entrepreneurs should take the constraints put in on the financial side and the systems required for reporting, etc. positively and constructively. VI: Apart from the capital, what are the value additions which a PE investor brings in? PM: Talking in particular about my company, raising PE has brought in a lot of discipline into the company MIS. This has helped us get a better insight into the company and strategize for our growth plans. Also, since these investors have a lot of portfolio companies and they have a good network in the financial sector, they bring a lot of synergistic opportunities to the table. However, the business has to be run by the entrepreneur. The investors cannot be expected to run your business in terms of coming on board and managing the operations.

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Entrepreneur Interview

Uma Ganesh Founder & CEO Global Talent Track

Funding: Pune-headquartered vocational training firm Global Talent Track had raised Venture Capital from Helion Ventures and Intel Capital in January 2009.

Venture Intelligence: Why did your company choose to go in for VC financing? Uma Ganesh: Employability is a very large business opportunity. To address this opportunity, we felt the need to have a very scalable model with adequate funding. We also felt our model has relevance to markets outside India as well and hence we can be an international operation very quickly. So, we wanted the right kind of VC investors who could bring us strategic advantages like their network, strategic inputs, etc. that could help us reach out to global markets as well.

VI: What would be your advice to other education industry entrepreneurs considering this form of funding? UG: If an entrepreneur is looking to raise money, he/she should first have a clear business model. Especially in Education, where there are probably several players in each segment, to bring that level of differentiation and relevancy, you need to find your sweet spot. Apart from this, PE/VC investors want you to have a good management team, a good network within the industry, the ability to bring in the right people quickly and especially strong execution capabilities. In a field like Education, it's often not about breakthrough ideas; it's about meticulous execution on the ground. So if you have that sort of experience in your team and the diligence to look at micro details, that would be a great asset when it comes to raising VC funding.

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Private Equity in the Indian Education Sector Opportunities and Challenges

Nitish Poddar Associate Director, Transaction Services, New Delhi

Aneesh Vijayakar Executive Director, Transaction Services, Mumbai

PE investments in the education sector increased from USD 129 million in 2009 to USD 183 million in 2010. Some of the large recent deals in the sector include PremjiInvest's USD 43 million investment in Manipal Education and India Equity Partners' USD 37 million investment in IL&FS Education and Technology Services.

200

Education Deals in India


182.6

150 128.9 100 20 11

50

37.6 11

0 2008 2009
Value (USD Million)

2010

14

Sector Contribution (Deal Value)

Others 29%

K-12 23%

Higher Education 5% Pre-School 6% Vocational Training 8%

Education Services 20% Test Preperation 9%

India Advantage
India has the third largest education system globally, after China and the US, with one million schools and 18,000 higher education institutions. With a population of approximately 540 million in the 0-24 age bracket, it is also the largest education market in the world. Education sector is the largest services market in India with a market size of more than 450 million students and USD 57 billion per annum (as of 2009). The landscape is primarily dominated by central and state government funded and managed institutions with 80% of all schools being government schools. The government currently spends about 4% of GDP on education, which is planned to be increased to 6% in the 11th five year plan to INR 2,700 billion from INR 435 billion in the 10th five year plan.

Third largest education system globally Largest education market in the world Largest services market in India Government increasing focus and spend

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High Investment Potential


Till the early 1990's, government regulation in the education sector had adversely impacted the operational efficiency and effectiveness of educational institutes. The early 1990's witnessed a liberalisation movement within India and a growth in entrepreneurship across the country which also resulted in greater focus on education. The increased need for quality education spurred the growth of private education in India, resulting in private institutions being set up by individuals and corporate groups. To meet the increasing demand for quality education in India, which can compete with other education systems globally, significant amount of investment is required industry estimates indicate that to meet the planned Gross Enrollment Ratio of 15%, an investment of approximately USD 21 billion is required in capital expenditure and USD 7.5 billion in operating expenditure. Given this significant gap between demand for quality and relevant education and supply, there is a huge potential for private investment. Accordingly, private equity interest in this sector has grown significantly. We have seen significant interest from private equity investors in the education Sector. Of the USD 183 million of PE investment in this sector, approximately 70% has been raised by businesses in the non-regulated space pre-schools, tutorials, ICT segment, test preparation, education services, etc. The balance investments have been made in the regulated space which is indicative of the complexity involved in investing in the regulated sector. Some of the key factors that make this an attractive sector for private equity investors include: Favourable demographics of India and significant demandsupply gap that provide significant opportunity to scale up businesses in this sector; As a business model, most education businesses have the ability to withstand downturns in economy, have predictable cash flows and low / negative working capital dependency; and Robust growth rates and attractive margins (low payback period) Though PE investment is still relatively low in both volumes and value terms, their participation has been increasing.

Growth Drivers
The education industry in India can be broadly classified in to the regulated segment (K12 and higher education) and the unregulated segment (preschool, multimedia, ICT, coaching cases, vocational training and books). In 2009, the regulated segment accounted for USD 45 billion and the unregulated segment for USD 12 billion of the total education market. This is expected to grow to USD 65 billion and USD 20 billion by 2012 at a CAGR of 13% and 18% respectively. The growth will primarily be driven by: Demand supply gap estimated investment requirement of approximately USD 100 billion to meet the demand from 230 million students enrolled each year and increasing by 8 million each year. Industry estimates indicate that to meet the gross enrollment ratio target in elementary education, 45,500 additional institutions need to come up by 2015 and to meet 15% gross enrollment ratio in higher education by 2012, an additional 460 institutions would need to be set up. Government reforms and higher spending the government has been taking steps to enhance education infrastructure and literacy in India. One of these include the Right to Education Act, which provides for free and compulsory education for students in the 6-14 age group, up to 25% reservation for economically weaker section students in private aided and unaided schools and no capitation fees. Further, the planned spend on education in the11th five year plan is almost six times that of the 10th five year plan. Other regulatory changes are also planned to ease investment and promote foreign private players to enter the sector. Change in mindset with the rise in middle class incomes, the savings ratio for securing higher education for their children has touched 55%. Educational and related expenses are deemed an investment. This change in attitude will act as a catalyst, promoting higher investments in the said sector. Quality perception quality of public sector education is perceived to be lower than that of the private sector. This will further heighten the demand for private sector institutions.

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Key Challenges
Despite increased investments and strong growth opportunities, the education sector also poses many challenges for private equity houses investing in this sector which need to be addressed. Some of these challenges have been highlighted below: Regulatory Hurdles the regulatory structure is antiquated with multiple government bodies having overlapping functions. The regulated segment is controlled by the government to prevent commercialisation, profit making and requires plough back of all surplus. There are also restrictions on curriculum, fee, student intake and course delivery. As a result, investors resort to innovative structures to realise profits through outsourcing, service contracts or supplementary courses. All these regulatory hurdles make this sector challenging to invest in and more importantly, these innovative structures are currently untested from a regulatory and tax standpoint. Management company structure and lack of exit route in the regulated segment there are two routes available for corporate participation. A) Indirectly through investment in companies providing school management or other allied services; and b) In some states where for-profit schools are allowed, they can invest directly into the schools which are affiliated with a foreign board. However, exit route for such management companies is currently untested and how the markets will respond to a management company proposing a public listing is unknown. Further, given this structure, where the cash flows and assets continue to rest with the trust, and not the management company that is being invested into, financial investors are unsure of investing in a company without direct control over underlying assets and cash flows. Lack of professional management some education institutions lack professional management and are at times run by promoter families which may require external assistance to scale up the business and make it competitive. Faculty shortage and lack of interest in the profession India's pupil-teacher ratio of 23 compared with a world average of 15, points to a severe shortage of teachers. Further, the situation is worsened by the low number of students opting to qualify as teachers as teaching is not a 'preferred' option at higher education levels. With India's demographic advantages and the opportunity to tap in to the yet unexploited education sector, PEs are upbeat on the education sector. Investors need to manage their risks through thorough due diligence, legal involvement from the start, with a clear and viable exit strategy. Regulatory issues are expected to remain a concern for private investors looking to invest in the regulated segment, but given the right investment climate, this sector could offer adequate potential for growth.

About KPMG

KPMG Transaction Services practice offers a suite of advisory services to private equity funds covering financial and commercial due diligence, market and industry analysis, financial model development, and operational due diligence. Aneesh focuses on the Education sector and has advised a number of corporate and private equity clients in the context of their investment decisions

Contact Details: Aneesh Vijayakar T: 91 22 3090 2131 E: aneeshvijayakar@kpmg.com

Nitish Poddar T: 91 124 334 5091 E: npoddar@kpmg.com

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PE Investment In Indian Education Through The FDI Route - Opportunities, Challenges, and Innovative Structures

INTRODUCTION:
This Article first discusses both the constitutional and regulatory frameworks governing the education sector in India. It then looks at the challenges that these throw up for private equity investment in the field, and finally discusses strategies and options available to investors to operate within the parameters set by the legal framework.

CONSTITUTIONAL FRAMEWORK OF EDUCATION IN INDIA:


Prior to 1976, education in India was a subject within the competence of the individual states comprising the Union of India. The Constitution (Forty Second Amendment) in 1976 transferred education from the State List to the Concurrent List, thus giving both the Central and State Governments jurisdiction over it. Following the 1976 Amendment, the National Education Policy, 1986 (as modified in the year 1992) was issued by the Department of Education, Ministry of Human Resource Development (the NEP). The NEP identified the union government as the organisation in charge of reinforcing the national and integrated character of education, maintaining quality and standards (including those of the teaching profession at all levels) and studying and monitoring the educational requirements of the country.

The Constitution (Eighty Sixth Amendment) Act, 2002 introduced Article 21A in the Constitution of India imposing an obligation on the state to provide free and compulsory education to all children of the age of six to fourteen years. This Amendment also introduced a new article (51A) which imposed a duty on parents and guardians to provide their children with educational opportunities. Further, through an Amendment to Article 45 of the Constitution, the State Governments have been vested with the responsibility of providing early childhood care and education for all children until they complete the age of six years. Pursuant to these amendments to the Constitution of India in the year 2002, the Government of India passed the Right of Children to Free and Compulsory Education Act in the year 2009 to ensure that every child has a right to be provided full time elementary education of satisfactory and equitable quality in a formal school which satisfies certain essential norms and standards.

REGULATIONS AND REGULATORY BODIES GOVERNING THE EDUCATION SECTOR IN INDIA:


Education in India can be broadly categorized into formal (or core) education and informal (or parallel) education. The formal education industry consists of primary or elementary, secondary and higher or technical education imparted by recognised and unrecognized educational institutions. Elementary and secondary education is collectively referred to as K-12 education, comprising of kindergarten and 12 years of schooling. Higher education and technical education deal with undergraduate and graduate level education. The Government of India is responsible for major policy decisions relating to higher education in the country. In addition to determining standards in institutions of higher education, research and scientific and technical institutions, it provides grants to the University Grants Commission (the UGC) and establishes central universities in the country. The central government is also responsible for declaration of education institutions as Deemed to be University on the recommendation of the UGC.

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K-12 education is regulated by state boards, Central Board of Secondary Education, the Central Council for the Indian School Certificate Examinations and the international baccalaureate while higher and technical education is governed by the rules and regulations framed by the UGC and the individual regulatory bodies such as the All India Council for Technical Education. State Governments are responsible for establishment of state universities and colleges, and provide plan grants for their development and non-plan grants for their maintenance. The coordination and cooperation between the Union and the States is brought about in the field of education through the Central Advisory Board of Education (CABE). Several professional councils have been set up for the purpose of awarding recognition of courses, promotion of professional institutions and providing grants to undergraduate programmes and various awards. The technical education system in the country can be broadly classified into three categories central government funded institutions, state government or state-funded institutions and self-financed institutions. The informal education industry in India mainly consists of preschool education, vocational education, corporate training, tutoring and test preparation. In order to be classified as a recognised educational institution, the affiliation or accreditation rules and bye - laws need to be adhered to. The Government has noted that institutions which are not accredited or affiliated to any university are to be considered as fake institutions having no legal personality and the degrees awarded by them cannot be treated as valid for academic or employment purposes. According to the University Grants Commission Act, 1956, the right of conferring or granting degrees shall be exercised only by a university established or incorporated by or under a Central Act, or a State Act, or an institution deemed to be university or an institution specially empowered by an Act of the Parliament to confer or grant degrees. Thus, any institution which has not been created by an enactment of Parliament or a State Legislature or which has not been granted the status of a Deemed to be University is not entitled to award a degree. The Central and state affiliation regulations or bye - laws set out in detail, conditions on the basis of which recognition or affiliation is granted to a school or a college. One of the most important conditions as prescribed in a majority of these affiliations, regulations or bye - laws is the requirement of the school or the college to be established and maintained by a society established under the Societies Registration Act, 1860 or a trust established under the Registration Act, 1908 or a not - for - profit company incorporated under section 25 of the Companies Act, 1956. The following are the extracts of a few affiliation regulations or bye - laws which state that this requirement is to be followed mandatorily:

The bye-laws define a private unaided school as a school run by a society, trust duly constituted and registered under the provisions of Central or State Acts, not getting any regular grant-in-aid from any government source(s). Chapter III on the Norms for Affiliation states that the CBSE may grant affiliation to, among others, private, unaided schools established by (i) societies registered, under the Societies Registration Act, 1860, as educational, charitable or religious societies having non - proprietary character or by (ii) trusts. Further, notification CBSE/AFF/2007/271721-276720, dated October 15, 2007, amended the definition of a private unaided school to include those established and operated by a not-forprofit company incorporated in accordance with section 25 of the Companies Act, 1956. However, the not-for-profit company has to obtain a no objection certificate from the concerned state government and must have education as one of its objects, and should channelize the funds towards furtherance of education.

2. The Guidelines for Affiliation by the Council for the Indian


School Certificate Examinations (with effect from May 2006): Chapter I of the guidelines provide conditions for provisional affiliation of schools wherein the following requirements, among others, are to be satisfied:

a) The school should be run by a registered society, trust or a


company incorporated under section 25(1)(a) of the Companies Act, 1956 for educational purposes. It must not be run for profit;

b) The constitution of the society, trust, company running the


school should be such that it does not vest control in a single individual or members of the same family; and

c) The school must have a properly constituted governing


body or managing committee, which is responsible to, and under the control of, the society, trust, or a not-for-profit company. It is interesting to note that while most State Governments in India grant affiliation to educational institutions established and maintained by a society, trust or a not-for-profit company, the State of Haryana permits a company incorporated under the Companies Act, 1956 to establish and maintain schools. According to Rule 29 (1) of the Haryana School Education Rules, 2003, every individual or association of individuals or firm or society registered under Societies Registration Act, 1860, or trust

1. The Central Board of Secondary Education (CBSE) Affiliation


Bye - Laws (with effect from January 28, 1988):

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created under the Indian Trusts Act, 1882, or company registered under the Companies Act, 1956 may apply to the appropriate authority in the prescribed form for setting up primary school, middle school, high school and senior secondary school. Unlike other state and central regulations or bye - laws on affiliation, these rules do not expressly require that a school should be established by a notfor-profit entity. It may, however, be noted that most of these schools (i.e. schools set up by for-profit companies) are affiliated to the international baccalaureate. Despite the permission available to for-profit companies to establish and maintain schools, most schools in India are established and operated by trusts and / or societies in order to avail tax exemptions and concessions such as lands at concessional rate exclusively available to such entities.

A combined reading of the provisions of the FDI Policy and the various state enactments relating to the establishment of educational institutions in India indicates that: a) schools and colleges that are established and run by a society or a trust are not permitted to receive FDI; and b) a not-for-profit company incorporated under section 25 of the Companies Act, 1956 can receive FDI, however, it cannot apply its profits or other income towards the payment of any dividend to its members. While point (a) prohibits the receipt of FDI by the society and the trust in entirety; point (b) makes the investment less attractive to any investor seeking to earn profit from the investment made into the company. Several educational institutions have, as a result of this impediment, opted for foreign collaborations wherein certain courses, scholarships, aids, grants in the foreign entity are offered to the students of the educational institutions in India without the involvement of FDI. Another consequence of the stringent regulations and the need for not-for-profit character of educational institutions is that a large chunk of education-focused FDI is being made in the formal and informal education sectors in India unaffiliated to central, state universities or regulatory bodies. These include FDI in the field of online tutorials and online education. The last decade has seen a sharp rise in private equity investment in the informal or parallel education sector. Entities such as preschool, private coaching and online tutorial enterprises have emerged as high yielding investment avenues for educationfocused private equity and venture capital players.

CHALLENGES IN PE INVESTMENT IN EDUCATION IN INDIA THROUGH THE FDI ROUTE:


Foreign investment essentially refers to an investment in an enterprise by a non - resident. Foreign investment is of two kinds foreign direct investment (the FDI) and foreign portfolio investment. According to the Consolidated FDI Policy (with effect from April 1, 2011) issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India, FDI can be made in Indian companies, partnership firms, proprietory concerns, venture capital fund and trusts which are in the form of a venture capital fund. FDI in trusts (other than venture capital funds) and societies is prohibited. The Government of India has, vide Press Note 2 (2000 series) dated 11.2.2000, issued by the Department of Industrial Policy and Promotion. Ministry of Commerce and Industry permitted foreign direct investment up to 100% under the automatic route in the education sector, subject to the sectoral rules or regulations as may be applicable. Therefore, while FDI is ostensibly permitted in education under the automatic route, the current FDI policy read along with the various affiliation and accreditation rules or bye - laws effectively prohibit foreign investors from investing in a society, trust or not-for-profit company permitted to establish and maintain schools in India. The FDI policy also regulates the receipt of FDI in constructiondevelopment projects including educational institutions. Up to 100% FDI is permitted in development of townships, housing, built-up infrastructure and construction-development projects (including but not restricted to housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure) subject to certain conditions which, among others, include minimum area conditions for the project, minimum amount of capitalisation and time period within which the project has to be completed.

INNOVATIVE STRUCTURES:
For those investors who seek to invest in the formal, regulated education sector consisting of recognised or affiliated educational institutions, alternate structures are being explored. These structures typically consist of:

a) a society, trust or a not-for-profit company which


establishes and maintains educational institutions;

b) a management company (usually incorporated as a private


limited company) which provides services such as books or transportation to the society, trust or not-for-profit company; and

c) an infrastructure company which provides land and other


necessary infrastructure to the society, trust or not-for-profit company.

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FDI is channeled into the management company which provides services to the society and/or the trust running the educational institution. The society, trust or the not-for-profit company running the educational institution pays fees to the management company and pays rentals to the infrastructure company for the services and the land/ infrastructure provided by them. This structure enables the investor (investing in to the management company) to extract returns on its investment. One must ensure that the transactions between these management companies and the society, trust or not-for-profit companies (in terms of pricing) are conducted as arms length basis and proper authorisation is sought from the board of directors of the management companies and the infrastructure companies on one side and the managing committee or the governing council / body of the society, trust or not-for-profit companies on the other. The relationship between the management company and the infrastructure company on the one hand and the not-for-profit entity setting up and maintaining the educational institutions on the other must be a meaningful one and not be pursued with an intention to mislead the authorities regulating the sector. While this innovative structure is being commonly used to work within the rules and regulations which are, in principle, against the idea of commercialization, there always exists an element of risk. Hence, most private equity investors instead look to invest in sectors and institutions which do not fall under the purview of various rules and regulations and to a large extent remain unregulated.

colleges which are not recognised or affiliated do not follow the norms of fixing fees, payment of salaries to the staff, and various other rules relating to the admission of students and employment of teachers, various affiliation boards insist that the educational institutions be established and operated by not-for-profit organisations. The present day education system in India is based on the values of equality, social justice and democracy, seeking to provide to all including the disadvantaged and the weaker sections of the society an equal opportunity in receiving education and ensuring that the education is provided at high standards of quality, infrastructure. Combined efforts of public and private entities through private public partnerships and grant of aid by government to private institutions are being sought to improve the education system. While the principle on the basis of which the Government of India and the State Governments insist on not-for-profit character of educational institutions is appreciated, one cannot undermine the advantages of permitting private, for-profit players in the industry. The present education system lacks support in the form of basic infrastructure, well trained staff and efficient management and organisation, to say the least. In light of these growing needs, the education system in India cannot be denied the opportunities that for- profit or foreign investment can bring. An objective analysis of the needs of the education sector and the advantages or disadvantages of permitting for profit investors has to be made. To provide better opportunities for students, educational institutions need to be equipped with the basic and world class infrastructure and support. This can be ensured by encouraging a wider participation by private players, joint collaborations between the private players and the central and the state governments. The education sector needs relaxation of current rules and regulations to facilitate its growth. However, one cannot ignore the possibility of imposition of more stringent laws and rules given the nature and sensitivity of the sector.

CONCLUSION:
Though FDI is permitted in the education sector under the automatic route, the current affiliation rules and regulations in the formal or core educational institutions are not conducive to the growth of foreign investment. Most educational institutions engaged in imparting K-12 education look to get recognised by, or affiliated with, the relevant affiliation boards, thereby reducing their chances of receiving FDI. This has resulted in FDI being made in the entities imparting informal or parallel education or in private, unaided educational institutions which are not affiliated to the concerned affiliation boards. As private, unaided schools and

About Narasappa, Doraswamy & Raja


Narasappa, Doraswamy & Raja was founded with the aim of bringing an international quality approach to legal practice in India. We are known for our partner-led service that combines practical solutions with sound legal knowledge. We are proud that our clients have recognized this, and choose to rely on us continuously. We feature in Chambers Asia 2010's national rankings for our Corporate / M&A and Private Equity practices. (http://www.chambersandpartners.com/Asia). Chambers Asia quotes our clients, [NDR] was always on the ball, helping us to move forwards and providing us with a detailed understanding of the complex legal considerations involved, without being pedantic. and, this is a small, responsive, smart and professional team that knows how to push a transaction forward and will go that extra mile to close a deal. I'd recommend the firm wholeheartedly. We are committed to providing high quality legal advice, maintaining the highest levels of professional integrity and motivating our team in a nurturing work environment.

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About the Authors

Siddharth Raja, Partner


Siddharth has extensive experience in private equity and venture capital transactions as well as expertise in cross-border and domestic M&A, corporate finance and general commercial law. Siddharth heads the private equity department at the Firm. He is described as a highly diligent lawyer, with a deep understanding of the law and a sharp intellect. (Chambers Asia 2010). Siddharth is ranked in Band 1 among private equity lawyers in India (Chambers Asia 2010). Prior to co-founding the Firm, Siddharth was a Partner for over a year at the Indian law firm, Udwadia & Udeshi where he worked on various mergers & acquisitions, corporate and corporate finance transactions and assignments. Before relocating back to India, he was an Associate for about 3 years with the international law firm, O'Melveny & Myers LLP, in their Hong Kong office, where he specialized in cross-border M&A, including representing China's leading e-commerce company, EachNet, in its acquisition by eBay. Siddharth also has experience in advising leading Indian corporates on their China business acquisitions and market-entry strategies. Prior to his stint with O'Melveny & Myers, he was an Associate at Udwadia, Udeshi & Berjis in Mumbai for 3 years. Siddharth has been a visiting faculty member at the oldest management department in India, the Department of Management Studies, Indian Institute of Science, Bangalore. He is admitted to practice law in India and in England & Wales (currently not practicing). Siddharth can be reached at siddharth@narasappa.com

Neela Badami, Senior Associate


Neela works extensively in the areas of venture capital / private equity transactions and general corporate advisory at Narasappa, Doraswamy and Raja. Her prior work experience has been in the area of capital markets transactions (IPOs, GDR and FCCB offerings) at a leading national law firm in India. Neela graduated with honours from the National Academy of Legal Studies and Research (NALSAR) University of Law, Hyderabad. She subsequently received her Masters in Law from the University of Michigan Law School, Ann Arbor, where she was a Michigan Grotius Fellow. She has clerked at the International Criminal Court in the Hague, Netherlands, and has been published in leading national dailies. Neela can be reached at neela@narasappa.com

Sindhushri Badarinath, Associate


Sindhushri works in the areas of private equity / venture capital transactions and general commercial law at Narasappa, Doraswamy and Raja. She has previously worked as an associate with Indus Law, Bangalore and has handled matters relating to general commercial law and employment / labour laws. She has worked on a variety of corporate legal assignments for clients in ICT (information and communication technology), healthcare, retail, and manufacturing sectors. Sindhushri is a graduate of the 2009 batch of Symbiosis Law School, Pune. She has also completed a diploma in international business laws and corporate laws in India from the Symbiosis International University (formerly known as SIEC (Deemed) University). Sindhushri can be reached at sindhushri@narasappa.com

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Investment Opportunities in the K-12 Sector in India Myths and Reality

Karan Khemka, The Parthenon Group

There is a plethora of private school businesses in India looking to start as many as twenty private schools a year to meet perceived demand of the market. These business plans are based on two fallacies: that the Indian private school market is large enough to support this expansion and that it is logistically possible for a single company to start over one school a month while maintaining quality and capital efficiency. Looking first at the size of the Indian private school market Parthenon is aware of estimates that quantify the market to have ten billion dollars or more of turnover. These estimations are often based on extrapolations based on total enrolment in Indian schools (290 million students) or the number of private schools in India (75,000 according to Government of India statistics). Parthenon recently conducted a survey of every private school in India with a phone number or an email address (just over 3500 schools; already an indication that the market is not deep) and could identify only 248 schools that charge annual tuition fees of Rs. 50,000 or more in the eight largest (Tier I) cities in India. Expanding the base to include the next twelve Tier II cities in India there are a total of 470 private schools in the twenty largest cities in India charging annual tuition fees of Rs. 20,000 or more. Only 53 new schools were opened in this price bracket (>Rs. 20,000) and these twenty cities in 2010.

The total enrolment in this price point is 340,000 students. Also, there are many cities in which private schools charging more than Rs. 20,000 p.a. are running at low utilization levels indicating overbuild. The top-down estimations commonly circulated on the Indian private school market are often ten times the size demonstrated by a survey of each school. Simply put, the premium K-12 school market is not as deep as it is widely believed to be.

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Market Revenues by Tier, 2010 2015F Rs. 8,000 Crore ~Rs. 6,300 Crore 6,000 India Tier 2 4,000 ~Rs. 3,300 Crore India Tier 2 2,000 India Tier 1 0 Revenue 2010 Revenue 2015F India Tier 1 15% 13% CAGR 10-15F

The premium K-12 total market demand across geographies is expected to grow from ~Rs 3,300 Crores last year to ~Rs 6,300 Crores in 2015 in India. The Tier I school market will grow at 13% CAGR whereas the Tier II segment will witness a 15% CAGR growth.

As this market turns out to be quite thin, it is probably unlikely to be able to support the expansion plans of 20-to-30 schools per year, projections which are frequently announced by many local education companies. A related point is the actual number of schools a single company can open in a given year. The most experienced school operators in India (e.g., Podar, Ryan, DPS) have grown by 5 to 6 schools a year in recent years far below the 10 to 20 schools targeted by newcomers with far less experience, brand value, political clout and access to land.

The investment opportunity in the Indian private school sector is entirely viable. However, given the scale and logistical complexity of the market, it requires a solid business plan targeting geographies and price points (by city) that can support rapid and profitable growth. This means that investors should choose their markets cautiously and invest in careful data-driven analysis. K12 education is a local catchment business and needs to be understood that way. Unlike higher education, where students often move to another city to go to college, K-12 students will not travel that far to go to school. Parthenon research shows that parents are willing to travel a maximum of one hour to bring their kids to school and that, besides location, the price point, curriculum and scale will largely determine the economic viability of the school.

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Micro-market analysis will tell you the size of the local demand (that is, how many children in the catchment area can afford your tuition fees), identify your competitors and give insight into the optimal capacity of the school. In the early planning stage, investors need to test assumptions on school rollout, price points and scale or they might end up having a school that does not run at full capacity and is financially unsustainable.

The Parthenon Group has the largest dedicated Education Practice in India with 35 advisors focused on providing clients with data-driven analysis to make informed decisions.

Children able to afford upscale segment

Children able to afford upscale segment, adjusted for catchment area

More than 400 children 200 - 300 Children 100 - 200 Children 50 - 100 Children Up to 50 Children Outside of catchment area Proposed New Schools Site Competitor School
The first map shows you exactly how many children in each of Mumbai's wards are able to afford a school at a particular price point. The second map adjusts the affordable population by specifying which neighbourhoods belong to the school's catchment area based on parents' drive time preferences. This type of analysis allows the investor to estimate the potential scale for a school at a particular location.

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About the Author


Karan Khemka is the Head of The Parthenon Groups Asia office and leads International Education Centre of Excellence practice. Mr. Khemka has extensive experience in the Indian, Asian and Middle Eastern sectors and has completed projects in the higher education, vocational training and school segments in over 30 countries. International education project scopes include business plan development, implementation support and quality improvement. Mr. Khemka has advised some of the largest schools and higher education companies globally on expansion, acquisitions and profit improvement. Mr. Khemka is frequently asked to speak at leading global forums on the school and higher education sectors, such as the International Finance Corporation conference on sustainable investing in education, Credit Suisse Global Services conference, IBC Asia Higher Education Summit, EDGE, Indo-US Summit on Higher Education and InspireED among others. Karan holds a bachelors degree in International Relations from Georgetown University and a MA in Law from Cambridge University.

Contact details: Priti Ahuja E: pritia@parthenon.com T: 022 6744 2500 / 6744 2506

About The Parthenon Group

The Parthenon Group is a leading advisory firm focused on strategy consulting, with offices in Boston, San Francisco, London, and Mumbai. Since its inception in 1991, the firm has embraced a unique approach to strategic advisory services built on longterm client relationships, a willingness to share risk, an entrepreneurial spirit and customized insights. Parthenon is also the only strategic advisory firm in the world to have a dedicated education practice. The Education Center of Excellence is a leading advisor to the global education industry, with clients across diverse sectors that include publishing, primary and secondary education, higher education, consumer education, vocational education and corporate training. Since 2001, Parthenon has completed more than 400 education projects with private and public sector organizations including universities, foundations, school systems and for-profit companies in over 60 countries across the globe.

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VOCATIONAL EDUCATION the time is nigh!

Abhishek Sharman, Vice-President, India Equity Partners

Education in India has traditionally been a means to get a degree and not a job (though ideally one would like to achieve both). Very few people in this country focus on education to upgrade their skills because of the lack of determinate returns associated with skills education. Such a state of affairs was potentially justifiable given the tepid growth of the economy, the relatively underdeveloped manufacturing and services sector and a puritan approach which has been imbibed across generations in India and which commands that education is to gain knowledge and should not be merely a means to a source of livelihood. Vocational Education hasn't been celebrated in India till now. Things have been changing in the last couple of decades; the results of the current census over the last census are encouraging- it is heartening to note that the literacy rates have increased by ten percentage points. However, outcomes associated with the education ecosystem in India are still poor; as many as 60% of children enrolling for schooling drop out without completing their education. This happens because of the perceived lack of effectiveness of this education to translate into jobs. .

As India looks to add more than 130 million people to its work force in the decade of 2011-20, right tooling the work force is one of the biggest challenges and opportunity for the country. It is apparent that in order for the country to grow its GDP at 8% per annum, it needs to be supported by commensurate growth on the supply side- meaning growth in trained employable manpower. Various sources estimate that for this incremental working population to be gainfully employed, 75-80% of them need to be trained on skills. The enormity of what needs to be achieved should not be mistaken because not only are we dealing with large numbers- we are also dealing with something we have never done before and therefore don't have a sense of how we can do it.

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As per an article by Technopak, out of India's 500 million workforce, only 2% has formal vocational training. Even including informal training programs, only a maximum of 10% of the workforce gets vocational training exposure. This compares very poorly with most other developed and developing countries. Countries like South Korea have 95% of the working population trained on skills and even Botswana has 22% of its work force formally trained on skills. What compounds this problem further is that a disproportionate part of India's manpower is engaged in agriculture and allied industries whereas the incremental growth of the GDP is happening in large proportions from the growth in manufacturing and the services sector. So it is not only a challenge of formally imparting skills training but also a challenge of re-tooling the skills. The challenge, while immense and imminent, is by no means insurmountable. A large number of for profit education companies which are today significant players in the educational landscape in the United States of America were created when, starting in the 1960s, it was felt that the working population needed to be re-tooled as the economy started changing from a manufacturing driven economy to a services driven economy. Apollo, which is one of the largest education companies in the world, was created as a response to this challenge. Despite this need and widely accepted urgency to react, India does not have private entities which have been able to meaningfully participate and take advantage of the opportunity. It's a fragmented market with different players targeting different niches- some partnering with the government to target below the poverty line youth, some targeting IT training, others focusing on English education but no single player has been able to create a large business in Vocational Education and one can safely assume that market opportunity is not the reason for this. For building a scalable vocational training business, it is important that three factors are taken care of accreditation; incentives for training and placement linkage.

It is important that the skills being imparted should be certified by the industry body or a reputed player in that segment of education. This is the first and most important criteria which the student looks at (of course, the education imparting entity may itself certify the course once it is reputed and seen as a leader in education in that field). For this to happen effectively, inputs and participation from the relevant sector participants should be invited in the courses being taught. Secondly incentives need to be built in for the student to undergo skills training (apart from placement). These incentives could be third party payment or loan availability for the course or something as quite often happens in developed countries- the completion of the course potentially enhances chances of success/ promotion in the job. Last but not the least, placement linkage is very essential for the course to succeed and this will happen only if relationship is built with industries and corporate who see themselves as partners to such skill training. Private Equity can play an important role in building scalable skills education focused companies. Any scalable model in education needs investments ahead of execution in order to create quality standards, facilities and placement linkages. There is also a need to study and be aware of global best practices because there is a lot to learn from vocational education focused companies globally. These initiatives and investments, if done correctly, will create differentiation. The sector needs long term growth capital and partnership with capital providers with capability and expertise. The challenge and hence the opportunity is massive, it's high time that we see businesses of scale being created focusing on vocational education in India.

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About the Author


Abhishek is a Vice President at IEP, a $350 million private equity fund focused on India. He plays a key role in IEP's investments in the HR Services, Education and Skills Training, Healthcare and Financial services sectors. Prior to IEP, Abhishek worked with SUN Capital, an investments firm focused on emerging markets- largely Russia and India, with more than $1 billion in investments. Abhishek holds Management and Engineering degrees from Indian Institute of Management, Calcutta and Indian Institute of Technology, Delhi. Abhishek is active in various industry forums and is a member of the Economic Affairs sub-committee of the CII for the western region.

Contact Details: E: abhishek@iepfund.com T: 91 22 4000 1000

About India Equity Partners

India Equity Partners (IEP) IEP manages an India-focused, long-term, control-oriented private equity fund with approximately $350 million of capital. IEP has offices in New York, Mumbai and Mauritius. IEP is part of a $2 billion pool of affiliated funds dedicated to India. We follow a fundamental research-driven investment philosophy with an investment horizon spanning 4-7 years. IEP aims to partner with outstanding entrepreneurs and management teams in fast growing sectors as a value-added investor. We are committed to assisting our portfolio companies and we accomplish this by leveraging the experience and relationships of our team members for strategic thinking, operations improvement, customer expansion, acquisitions, recruiting senior management and assistance with fund raising. We typically invest $20-60 million in a single investment but will invest larger amounts with co-investors and partners.

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About Systematix Capital


Systematix Capital is a boutique investment banking firm committed to providing value added services to its clients in the field of capital raising and M&A. We advise companies in various stages of its growth right from Venture to Mature for their funding requirements. We also offer M&A advisory services to our clients for their inorganic growth plans and exits to the stakeholders. Besides our two dedicated offices in Mumbai and Delhi, we also operate through our associate partners in Japan, US, Hong Kong, Singapore, Germany and UK. Since inception in 1995, we have been instrumental in closing deals in various sectors including Education, Healthcare, Real Estate, Pharmaceuticals, IT, Hospitality and Engineering. On the education front, we have recently closed an INR 1.1 Bn deal for private equity placement to pathways World School. Further, we are currently working with various kinds of education institutions ranging from Kids School to Online Post Graduation Education Companies to Coaching Classes.

About Systematix Group


Systematix Group is a one stop shop for various financial services like investment banking, merchant banking, institutional and retail broking, wealth management, NBFC etc. under its gamut. The group's flagship company Systematix Corporate Services Limited is listed on Bombay Stock Exchange. The group is headquartered in Mumbai and has a pan India presence with 25+ offices across the country and employs more than 470 employees across the verticals.

Contact Info: Nikhil Khandelwal Abhishek Khandelwal E: nikhil@systematixgroup.in E: akhandelwal@systematixgroup.in Tel: 91 22 6704 8000 / 4228 7000; Fax: 91 22 6704 8022

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Issues Facing Education Investments - The Trilegal View


Kosturi Ghosh, Partner

What are some of the best practices you would recommend for PE investors considering investments in the Education-related sectors?
Education holds a strong social association in any economy and more so in the Indian context. This has mandated that education and the 'business' of imparting it to be treated as a noble cause and protected against commercialization. In order to ensure this, the education sector has been required to be run as not-for-profit institutes. Moreover, surplus funds generated in the process of running formal schools is required to be ploughed back into the same school and no dividends can be distributed. This has adversely impacted the growth of the education sector within India. The generally prevalent not for profit approach and a rigid regulatory set up had discouraged private equity. However, in the recent past, education deals have seen their fair share of limelight. Some private equity funds are even setting up dedicated funds due to the huge potential this sector has to offer. Some of the important things to bear in mind when investing in the education sector Understand the business the business of education has various facets. Other than schools and colleges, there are other opportunities like pre-schooling, coaching and tutoring, test preparations, vocational training, content development. These sectors are outside the not for profit stipulations and are open to investment and commercialisation. Also, not every school is confined to be run without profit. Schools that are affiliated to foreign boards like IGCSE or IB do not have any compulsion to be run as a not for profit school.

Understand the structures one of the most common complaints in the case of the two or three layered structures adopted by schools and higher education institutions is the potential for leakage of funds. Another big challenge is the issue of corruption impacting the legitimacy of operations. Private institutions in India are also known to accept "donations" from individuals to compensate for shortfall in fees. Most, if not all, of such transactions are not recorded and the funds are siphoned off. Do the diligence in the multi-layered structures, sometimes not enough time is spent studying the various companies responsible for the management of the schools, the owner of the land. Each of these have their own unique challenges commercial and legal and each of these need to be understood in their individual right and as part of the larger whole. Tailor the investment documents - adopting standardized documentation do not necessarily help when investing in this sector. It is important to tailor the affirmative rights that the investor enjoys in the investee companies. Equally important are corporate governance standards and reporting measures like MIS and quarterly financial statements. Having a CFO is a worthy expense to monitor the movement of funds. Be patient - due to interest from large number of investors, there is tremendous competition to seek out and find the best possible deals. In general, it takes a lot more time to identify a suitable company for a private equity investment in India in this sector compared to the developed countries in general. The initial capex costs are very high and breakeven time for schools and educational institutions is generally long. This sometimes doesn't fit well with private equity investors' plans whose investment horizon is about 3 to 5 years.

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Despite rising demand for better quality education among the people (including from the bottom-of-the-pyramid sections who pay to send their Children to private schools rather than the free government ones), the government seems to be in no hurry to free up regulations governing this industry. What is your expectation on the road ahead on the regulatory front? The education space in India is a promising sector with large potential for private equity investments. De-regulation will be the long awaited catalyst that will trigger massive investment into the Indian education sector. While the general argument against deregulation in this sector is the fear that it would lead to its commercialization, however, it cannot be ignored that deregulation of this sector will finally permit it to realize its growth and the opportunity to better existing infrastructure. It is interesting to note that in recent past there has been a concerted effort to overhaul the existing systems. Various bills in relation to higher education have been tabled before the Parliament to ensure quality and transparency in the education sector and to curb malpractices. At the Indian Education Conference 2011 held in April, industry and government both recognized that education needs to be looked at as an enterprise and that funding needs to come not only from the government but also from private players. Entry of foreign educational institutes into India is under consideration. Although this is a welcome move in favour of liberalization, however it is still saddled with the 'non-profit' idea and the surplus in revenue generated in India by the foreign provider is required to be invested for the growth and the development of the institute established by it. Establishment of an educational institution involves a huge financial commitment and such a restriction will be a major hurdle to foreign players entering the market. Considering these and existing milieu, we do not foresee any changes in the education space in the immediate future which is likely to trigger increased private equity participation. Investors may have to continue to explore "out of the box" structures to extend and consolidate their presence.

While more and more PE investors are developing comfort for investing into the K-12 segment by using a management company/infrastructure company kind of structure, there is also a fear that these structures will not stand the scrutiny in a court (since it violates - in spirit - the non-profit mandate for the sector). What would be your advice on this aspect? Due to the restrictive nature of the sector, many investors have been forced to use "innovative structures" to invest in K12 schools. There is nothing new in this respect and both entrepreneurs and private equity players realise that in the face of crippling regulation innovation is the only backdoor. Having said that the bona fides of such structures is fundamental to giving these arrangements any legal backing. There is an ever present risk of these "innovative structures" being struck down because of various factors, be it the proprietary nature of the trusts or societies or the outsourcing of the entire management of schools. On one hand, with the rising demand for private schools and the focus on quality education, there is a strong indication towards liberalization of the sector. However, till such time that the government takes note of this need to dilute the existing regulations, there shall remain a risk of the government or the courts coming down heavily on the existing structures adopted by the schools.

About Trilegal

Trilegal is a full service law firm with 18 partners and over 150 lawyers across offices in New Delhi, Mumbai, Bangalore and Hyderabad. Operating at the forefront of the Indian market, Trilegal has advised on some of the largest, most complex and cutting edge domestic and cross border transactions across practice areas.

Contact Details: Kosturi Ghosh, Partner The Residency, 7th Floor, 133/1, Residency Road, Bangalore 560 025 T: 91 80 4343 4646 F: 91 80 4343 4699 E: kosturi.ghosh@trilegal.com

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Listing of Active Investors in the Education Sector

Accel Partners
www.accel.com

Office Address: Suite 26, Aman Hotel, New Delhi - 110003 Tel: 91 11 4220 4222

Other Office Locations: Palo Alto, New York, London, Beijing, Shanghai, Bangalore

Contact Person: Sulabh Arya E: sarya@accel.com About us: Accel Partners is a leading venture capital and growth equity investment firm. It has helped entrepreneurs build over 300 successful companies and manages $6-billion of capital globally.

General Atlantic
www.generalatlantic.com

Office Address: 3 Pickwick Plaza, Suite 200 Greenwich, CT 06830 Tel: 1 203 629 8600 Fax: 1 203 622 8818

Other Office Locations: New York, NY Palo Alto, CA So Paulo, Brazil London, U.K. Dsseldorf, Germany Mumbai, India Hong Kong, China Beijing, China Amit Soni, Vice President asoni@generalatlantic.com

Contact Person: Sunish Sharma, Managing Director E: ssharma@generalatlantic.com

About us: GENERAL ATLANTIC is a leading global growth equity firm providing capital and strategic support for growth companies. Established in 1980, GA manages approximately $17 billion in capital and has more than 75 investment professionals.

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Listing of Active Investors in the Education Sector

IDG Ventures India


www.idgvcindia.com

Contact Person: Hemir Doshi E: hemir_doshi@idgvcindia.com About us: IDGVI is a US$150 Million technology venture capital fund. Education opportunities leveraging technology is one of the key areas of interest. Recent investment in Education sector include iProf, a tablet based e-learning marketplace for test preparation and distance learning segments.

India Equity Partners

Office Address: IEP Fund Advisors Pvt. Ltd. 505 Ceejay House Dr. Annie Besant Road Worli, Mumbai 400 018 Tel: 91 22 4000 1000 Fax: 91 22 4000 1010 Contact Person: K.K. Iyer, Managing Director E: kkiyer@iepfund.com

Other Office Locations: New York and Mauritius

Abhishek Sharman, Vice-President E: abhishek@iepfund.com

About us: India Equity Partners (IEP) IEP manages an India-focused, long-term, control-oriented private equity fund with approximately $350 million of capital. We follow a fundamental research-driven investment philosophy with an investment horizon spanning 4-7 years. IEP aims to partner with outstanding entrepreneurs and management teams in fast growing sectors as a value-added investor. We are committed to assisting our portfolio companies and we accomplish this by leveraging the experience and relationships of our team members for strategic thinking, operations improvement, customer expansion, acquisitions, recruiting senior management and assistance with fund raising. We typically invest $20 to $60 million in a single investment but will invest larger amounts with co-investors and partners.

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Listing of Active Investors in the Education Sector

India Alternatives

Office Address: 301/302, 36 Turner Road, Bandra (W), Mumbai-400050. India Tel: 91 22 4238 2444 Fax: 91 22 2643 2604 Contact Person: Shivani Bhasin Sachdeva, CEO M: 91 98675 80509 T: 91 22 4238 2401 E: shivani.bhasin@india-alt.com Ashish Agrawal, VP (Investments) M: 91 98705 47047 T: 91 22 4238 2402 E: ashish.agrawal@india-alt.com

About us: India Alternatives is a Private Equity Fund, typically investing in 25-75 crores in mid-growth stage companies having turnover of more than 50-60 crores. We are interested in Higher Education, Vocational Institutes, Renewable Energy, Water Solutions, Waste Management, , Healthcare Ancillaries & Consumables, Infrastructure Ancillaries, Food Processing and Consumption Related Companies

Norwest Venture Partners


www.nvp.com

Mumbai: 701/705 Dalamal House Nariman Point, Mumbai 400021 Tel: 91 22 6150 1111 Contact Person: Niren Shah E: nshah@nvp.com

Bengaluru: 15th Floor, Concorde Towers UB City, 1 Vittal Mallya Road Bengaluru 560001 Tel: 91 80 4030 0456

Other Office Locations: Palo Alto, California, USA and Herzelia, Israel

Mohan Kumar E: mkumar@nvp.com

About us: Norwest Venture Partners (NVP) is a global, multi-stage investment firm that manages more than $3.7 billion in capital and has funded more than 500 companies since inception.

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Active advisory firms in the Education Sector

KPMG India
www.kpmg.com/in

Office Address: Lodha Excelus Apollo Mills Compound, NM Joshi Marg, Mahalaxmi, Mumbai - 400 011 Tel: 91 22 3989 6000 Fax: 91 22 3090 2210

Other Office Locations: Bangalore, Chandigarh, Chennai, Delhi, Hyderabad, Kochi, Kolkata, Pune

Contact Person: Aneesh Vijayakar, Executive Director, Transaction Services E: aneeshvijayakar@kpmg.com T: 91 22 3989 6000 About us:

Nitish Poddar, Associate Director - Advisory E: npoddar@kpmg.com T: 91 124 334 5091

KPMG Transaction Services practice offers a suite of advisory services to private equity funds covering financial and commercial due diligence, market and industry analysis, financial model development, and operational due diligence.

SSKM Corporate Advisory Pvt. Ltd


www.sskmca.com

Office Address: 145 Tribhuvan Complex, Ishwar Nagar, Mathura Road, New Delhi 110 065 Tel: 91 11 4670 8888 Fax: 91 11 6662 8889 Contact Person: Vikram Mehta E: v.mehta@sskmin.com M: 91 98101 95222

Other Office Locations: 21 Lansdowne Place Flat No 4A/4B 4th Floor Kolkata - 700029

Amrish Garg E: a.garg@sskmin.com M: 91 99999 81321

About us: A boutique investment bank offering M&A, Private Equity and Corporate Advisory services

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Active advisory firms in the Education Sector

Systematix Capital Services Pvt Ltd


www.systematixshares.com

Office Address: Systematix Capital Services Pvt. Ltd G2 A Platina, Near Citibank Tower, Bandra Kurla Complex, Bandra (E), MumbaI - 40051 Tel: 91 22 6704 8000 / 4228 7000 Fax: 91 22 6704 8022 Contact Person: Nikhil Khandelwal E: nikhil@systematixgroup.in

Other Office Locations: Fort, Mumbai Jasola, New Delhi

Abhishek Khandelwal E: akhandelwal@systematixgroup.in

We are looking for: Education companies in various stages of its growth path for their fund raising and M&A opportunities.

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Education Venture
List of PE/VC investments in Education during the previous yeat

Education Companies ?
information on Private Equity and M&A activity in the Education Industry. The Venture Intelligence Education Industry Package includes: Quarterly Digest of PE and M&A deals in the Education Industry in a

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Indias Largest Deal Information Bank www.ventureintelligence.in

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