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Street Smart: Team Members       Akshay Gautam       Institute Name: Indian Institute of Management, Ahmedabad       Mobil...
Overview of the Indian Education Sector                           Overview                                                ...
Overview of Probit Limited                          Overview                                                              ...
Potential Acquisition Targets in the Sector                  Future Education                                             ...
Rationale For Acquisition                                 Rationale for acquiring Premium Coaching Enter a high growth se...
The acquisition process: Going Forward                        Information                                                 ...
Hector Capital:Strong Commitment to Indian Education Sector                                      The Hector Capital Group,...
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Streetsmart hector capital_iima_akshay_vinay


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Presentation for IIMB Vista on Education Sector

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Streetsmart hector capital_iima_akshay_vinay

  1. 1. Street Smart: Team Members Akshay Gautam Institute Name: Indian Institute of Management, Ahmedabad Mobile Number: 9687043757 Email-ID: Vinay Kumar Institute Name: Indian Institute of Management, Ahmedabad Mobile Number: 7567757353 Email-ID: 1
  2. 2. Overview of the Indian Education Sector Overview Key Players Third largest education system globally, after China and the US, with Company Segments one million schools and 18,000 higher education institutions With a population of approximately 540 million in the 0-24 age  College/School Test Preparation  K-12 Schools and Skill Schools bracket, it is also the largest education market in the world Largest services market in India with a market size of more than 450  Pre-School, K-12 Education million students and USD 57 billion per annum (2009)  Higher, Vocational Education Opportunities in the Indian Education Sector:  College Test Preparation  GoI willing to engage the private sector in the education sector,  e-Learning Solutions significant opportunities both in government and private schools  Pre-school, K-12 & Higher Education: 67% of the market &  School Test Preparation growing, but more competition leading to low margins  K-12 Schools  Other high growth areas: Vocational, online and Test prep segment having an estimated growth rate of between 15-60%  Corporate Training solutions annually  Computer based learning Key Drivers Recent TrendsStructural  Urbanization and rising disposable income Private SectorChanges  Household spending on education grown Growth in Expenditure Enrolments (Mn) rapidly, CAGR16.3% in 2002-08 to US$ 15.6 Bn  A sustained GDP growth increasing demand for US$ Bn 40 38 235 skilled educated labour force in the economy 33 228 35 230 29 223Favorable  Projected to have the world’s largest population 225 219 30 25Demographics under 20 years - 468 Mn in 2015, 40% higher 220 25 22 212 than China’s under 20 population at 318 Mn 215  Increasing focus on importance of education by 20 210 the rising middle class 15 205 200 200Government  Growing shift towards private education service 10 6 195Regulations/ providers for increasing the quality & funding 5 190Spending  More segments being opened up for For-Profit 0 185  Allocation to the sector increased: FY plans 01 12 13 14 15 16 03 04 05 06 07 Assuming USD/INR Exchange Rate of `45/$ 2 Source: CRISIL, Technopak, Venture Intelligence
  3. 3. Overview of Probit Limited Overview Financials Established in 1990, as a leading finishing school for the IT sector ` Crores 2011  Provides IT learning solutions for individuals, enterprises, schools and colleges in India & globally across 40 countries 400 369 Revenues  Has diversified into school and corporate education services 272 10 300 Provides content directly to classrooms of schools and colleges using % 35 video conferencing 200 % Growth Prospects: 58 55 100 55  The growing IT industry in India is driving IT education and 25 25 % training market as well as enhanced teaching techniques 0  Given its reach, expand as an infrastructure provider to schools Gross PBT PAT Risks: Revenue US Corporate  Perceived mainly as a software education provider Indian IT  Drop in IT hiring is perceived as a risk 2010 2011 Others Finishing Schools Segment Avenues for Value Creation The recent boom in the Indian economy has enhanced the need for finishing schools as many people who graduate from tier-2 and tier-3 Diverse colleges in India lack the requisite technical and communication skills Portfolio for the job High Comp.  US$ 150 Mn market Adv. growth  IT finishing schools typically cover technical skills as well as segments communication and problem solving skills required for the job Creating  The biggest advantage of these finishing schools is that these Value schools cut down the "deployable time" for a company High Tap Rural Key Drivers: Profit India  High demand for “soft skills” in the IT/BPO sector Margins  Outcome-based learning translates to “job-ready” students Achieve  Large firms have invested, but smaller firms lack infrastructure Scale  Some institutes have 100% job guarantees from the Indian Govt. Source: CLSA, Annual Reports, News Runs. 3
  4. 4. Potential Acquisition Targets in the Sector Future Education Novell Education Solutions Business:  Business:  K-12 Education Schools, Online Tutoring & Teacher Training  Computer Education in Schools & Colleges, eyeing K-12 Market Strengths/Opportunities:  Strengths/Opportunities:  Present in the entire value chain of Primary Education, largest  Knowhow of state of the art technologies to deliver digital player in the Indian Education Sector & a global experience content, a competitive edge to leverage upon in the future  Strong foothold on the government school ICT projects  Ability to reach the remotest corner using the technology  Rise in Broadband usage to increase Online Tutoring business  Economies of Scale benefits as number of centers increased Risks/Weaknesses:  Risks/Weaknesses:  K-12 sector highly competitive and prone to new regulations  Revenue Concentration – 67% revenues from ICT projects  40% revenue seasonal, strong dependence on a single source  Operating Risks – maintenance of hardware across geographies Growth Plans:  Operating Leverage – growth in centers to ensure profitability  Adding around 160 schools, increasing online tutoring subscribers  Growth Plans: by 9 times by FY 2014  1000 centers by FY 2014, up from 200 currently in operation Premium Coaching Financials Business:  Prep Courses/Coaching Classes for IITJEE/MBA Entrance, etc. 273 ` Crores 300  New entrant in main stream educational field: Chain of Play 250 schools – Khushi, K-12 schools & higher education institutes Strengths/Opportunities: 200 169  Instructor based as well as Web based services capability 150  Leaders in one of the high growth segment of the sector 100 100 82  Adequate funding to expand – INR 50 cr from a Private Equity 65 47 Risks/Weaknesses: 50 11 NA NA  Revenue Concentration – 72% revenues from MBA test prep 0  Might lose focus on core business as a result of rapid expansion Future Education Novell Education Premium Growth Plans: Coaching  240 coaching centers by FY 2013, up from 140 currently Gross Revenue PAT NW  Entering into K-12 schools & play schools in the informal space Source: CLSA, Annual Reports, News Runs. 3
  5. 5. Rationale For Acquisition Rationale for acquiring Premium Coaching Enter a high growth segment: Presence in Test Preparation  Diversification: Entering high growth segments such as Test-Prep Segment which is growing at a rapid pace of 20% CAGR and marginally profitable segments such as K-12 allows Probit to  Close to 4,00,000 students take IIT JEE and 2,30,000 students diversify its revenues away from providing IT skills education take CAT every year  Business in the US corporate training market is susceptible to Synergies: discretionary spending cuts  Revenue enhancement: By deploying its school ICT education  Current business is also susceptible to growth in Domestic IT infrastructure in K-12 schools currently being run by Premium Industry – drop in hiring can result in slowdown Coaching, it can gain additional revenue  As margins in getting content within the classroom are higher  Cost reduction: Sharing infrastructure with schools being run because of lower infrastructure requirements, Probit gets an by Premium Coaching and lower teacher requirements in Tier II opportunity to bid aggressively in the ICT school education space and Tier III cities in India through ICT learning  Long term plans in-line with each other: Premium Coaching  Continuing Synergies: As Premium expands K-12 schools, also runs K-12 school and an MBA school, while Probit has already Probit will reap the benefits in the long run started providing IT education in Schools and collegesTarget Play School K-12 Test Prep Colleges School ICT IT Training RankSize US$300 Mn US$20 Bn US$2 Bn US$7 Bn US$1 Bn US$ 150MnCAGR 18% 14% 20% 17% 10% 14%Regulation Medium Medium Low High Low LowProbitLimitedFutureEducation 3NovellEducation 2PremiumCoaching 1 Source: CLSA, Annual Reports, News Runs. 5
  6. 6. The acquisition process: Going Forward Information Valuation Model Buy Side – Probit Limited  Discounted Cash Flow Analysis  Financial Statements  Discount FCFF of Premium Coaching at its WACC  Management’s view about strategy going forward and potential  Transaction Comparables Method synergies with the target firm  Estimate EV/EBITDA multiple based on recent transactions in the Indian Education Sector  Discuss acquisition process with management  Multiply with EBITDA of Premium Coaching  Trading Comparables Method Sell Side – Premium Coaching  Estimate EV/EBITDA multiple based on currently trading  Financial Statements to arrive at Free cash flow to Firm comparable stocks – NIIT, Aptech and Everonn  Pro-Forma financial statements and business plan for the next 5  Multiply with EBITDA of Premium Coaching years for different segments  Sum of the Parts Valuation (SOTP)  Discuss Buyer firm’s strategy and business plan with Sell side  Value each segment of Premium Coaching Separately and sum up management to arrive at a consensus opinion  Different growth segments and management plans  Due diligence report  Arrive at an upper and lower bound for Premium Coaching Proposed Timeline to finalize the acquisition Confidentiality &  Letter of Intent and  Due Diligence and  Disclosures &  Closing The termination agreement Term Sheet Definitive Agreement Informing the target Transaction1. Agree on price and form 1. When both firms broadly 1. The agreement binds the shareholders 1. The M&A agreement of payment two parties to 1. Material and probable2. Commit to confidentiality agree to terms of a deal commits the two firms to consummate a transaction decisions must be made and exclusivity 2. Helps to confirm the 2. Due diligence involves in- public to shareholders conclude a transaction3. CEOs of both Probit and growing level of depth research at the 2. Target shareholder vote 2. Payment is made and Premium brief their commitment and guide target company is required through a ownership is assumed by respective boards about the lawyers in drafting a 3. The agreement requires proxy Probit Limited. negotiations Definitive Agreement an affirmative vote by Target’s board Oct 3, 2011 Oct 15, 2011 Nov 3, 2011 Dec 3, 2011 Jan 2, 2012 Source: Applied Mergers and Acquisitions, Bruner 6
  7. 7. Hector Capital:Strong Commitment to Indian Education Sector The Hector Capital Group, Inc. is a leading global investment banking, securities and investment management firm. We provide a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1978, the firm is headquartered in Mumbai and maintains offices in all major financial centers around the world Akshay Gautam Vinay Kumar Head, India Investment Banking MD, India Investment Banking  TMT & Education Banker  TMT & Education Banker  Over 15 years of experience across TMT &  Over 12 years of experience in the Education sector in India and HK Education & TMT sectors across US & India  Pitched Everonn Education for its 2007 IPO  Advised Gaja Capital to invest in CL  Advised Matrix Partners to invest US$ 200  Advised Educomp to buy 67% stake in Vidya Mn in FIITJEE in 2009 Mandir Classes Recent Deals in the Indian Education Sector2010: Advised Educomp 2008: Advised Everonn 2007: Advised Gaja 2010: Advised Aptech‘s 2007: Lead Bookrunnerto acquire 67% stake in Systems to acquire Bihar Capital to invest US$ buyout of Maya Academy for US$ 100Mn IPO.VMC for US$ 7.4 Mn based Toppers Tutorials 8.25 Mn in Career of Advanced Cinematics 131 x oversubscribed Launcher for US$ 150 Mn2010: Advised Franklin 2008: Advised Educomp 2009: Advised Matrix 2011: Advised NIIT to 2009: Lead BookrunnerTempleton PE to invest to acquire 50% stake in Partners to invest US$ acquire Madrid based IT for US$ 5Mn IPO.US$ 100 Mn in Career Euro Kids US$ 8.5 Mn 200 Mn in FIITJEE Firm Proyecta 1.3x oversubscribedPoint 7