GP Profile: Kyip Capital on debut fundraising, opportunities in Italian education

Kyip Capital announced the EUR 100m first close of its debut fund in October 2021, as reported. Since then, the GP has rebranded from its previous name of Kyma Partners to Kyip Capital.

The fund has surpassed its original target with its interim close. The fund expects to reach its hard-cap of around EUR 160m - EUR 165m by Q1 2023, founding partner Losi told Unquote. Despite the expected increased in size, the fund will still invest in eight to nine companies but with additional capital reserves for add-ons, he said.

LPs in the fund currently include the Fondo Italiano di Investimenti and the European Investment Fund (EIF), both of whom are anchor investors, according to a press release. A pension fund, an Italian bank and several family offices, as well as a total commitment of EUR 50m from a group of high-net-worth individuals, make up the remainder of the vehicle’s LPs.

Gianluca Losi, KYIP Capital

“We are seeing increased interest from international investors in our investment thesis and our team,” Losi told Unquote. “Our portfolio is in the making, with Datlas and our new education platform, and we have one new deal materialising, too.”

The GP announced the acquisition of Italy-based data validation and integration platform Datlas at the time of the first close of its debut fund, as reported.

Although the GP is raising capital in a tough fundraising environment, it is confident of securing further commitments for the final close, according to Losi. “We’re mainly expecting European funds-of-funds that are looking for teams with a specific investment thesis locally, or alpha returns,” he said. “This is in line with our local, verticalized structure around our thesis on digital transformation and technology, and our aim to deliver superior returns compared to market average.”

Education dynamics
The second portfolio company in the fund is an education platform made up of a group of private Italian universities. The investment is held in K-Now Holdings and Kyip owns 60%-90% in each company within the structure, fellow founding partner and head of digital and operation Privitera said.

The GP acquired Rome University of Fine Arts (RUFA, a provider of BA and MA courses) at the end of 2020, followed by Scuola Politecnica di Design (SPD, based in Milan and providing MA courses) in summer 2021, and Ferrari Fashion School (FFS) at the end of 2021. It is also building an academy of music in Rome. According to Privitera, this will be the biggest private academy for music in Italy, covering jazz, blues, electronic and pop music. “We are expecting to add a fifth university with a closing in the third week of June,” he said.

Carlo Privitera, KYIP Capital

Privitera explained the increasingly important role of private education in Italy: “In the education space, there is a huge change underway – Italy has had issues delivering proper quality to students in public education, and the education provided by the Catholic church has been cut down, so we are seeing an increase in private education.”

At the same time, digitalisation is a necessity in the market, according to Privitera. “The customers for this market are generally aged 18-23, so they are digital natives, but their universities are still talking in analogue language, so there a big divide in the tools that they need and the communication that their university sends,” he told Unquote. “86% of this group don’t use email, just instant messages, but their universities are still sending communication via emails. We want to close this gap by combining private education with technology, digitalising the business model.”

Some university groups were hit by travel restrictions brought about by the coronavirus pandemic, but dealflow began to return to the sector as some of the uncertainty lifted, as reported by Unquote.

The fall in international students did affect some of the group, Privitera noted. “Two of the schools in the group do admit international students, and we saw a 30% admission drop in 2020-21,” he said. “But for 2022-23, as of today the numbers are back, and they’re actually higher than they were in 2018/19. Some interest from the market fell with outbreak of war in Ukraine, but it came back strongly in May.”

A further dynamic at play in Italy is the uncertain macroeconomic situation, which is making more students consider further education. “The post-Covid labour market in Italy is also making many Italian students not want to enter the labour market yet – they want more education, especially at Masters level,” Privitera said.

Private equity activity in the higher education sector in particular is well-established, with groups such as France-based Galileo Global Education (backed by Montagu amongst others) pursuing acquisitive strategies and generating increasingly competitive valuation multiples.

“Our biggest competition is from international funds who have done something similar in other countries and who see Italy as one of the next steps,” Privitera said. “It’s a double-edged sword: they can be amazing customers for an exit if they don’t build their own group, or they can be very tough competition. A couple were there as potential bidders on the university that we bought recently, as well as other educational institutions that are backed by PE.”

Building the platform
The K-Now Holding group plans to add two to three more universities, Privitera said. It currently posts revenues of EUR 14m -EUR 15m and has around 3,500-4,000 students, with the intention to double in size over the investment period.

The platform has been funded fully by equity so that all cashflows from the businesses can be put towards growth.

The GP expects to see margin improvements in the group from increasing the number of students on existing courses, as well as the launch of new courses,” Privitera said. This includes an accredited course in sustainable fashion, with further new courses and cooperation between the universities on the platform still to come, he said.

“We are starting to build in all the services that the universities need to the holding company, controlling different departments through this and bringing in a digital marketing team,” Privitera said. “From a customer perspective, all these universities have a good brand heritage, and this will not be lost, but we are integrating them at the back end. We also want to bring in an edtech company, such as one related to language learning.”

Kyip is sourcing deals for the group through its various networks. “Some of our partners have historic knowledge in the education industry, and on the technology side we are building a network of advisers, friends and colleagues who can help us to develop the assets and source some deals,” Privitera said.

Not only is the development of the group linked to the digitalisation of Italy’s economy, but there are also a number of ESG elements to the investment, according to Privitera. Part of this comes from the campuses that the group is building in Milan and Rome. “In Rome, the project is on the site of a former wood manufacturer, and we are trying to design a zero emissions campus,” he said. “In Milan, we are working with the landlord of an existing building to change the environmental impact of the building.”

The “S” in ESG is also an important part of the investment and the development of the group, Privitera told Unquote: “The attention of teenagers is focused on social issues and diversity – they are sensitive to these subjects and it is really relevant, so we want to create an environment that is socially welcoming and diverse.”

Looking to the future
While it is focused on the development of its university platform, the GP has not lost its ambition to invest in K12 school assets in Italy. “There has been no consolidation in Italy at school level – a lot of private families own them but there is no national player,” Privitera said. “This will be an interesting discussion in future, and we need to find an interesting first platform to start. The market is very fragmented, and we would need to make 14-15 acquisitions to build a group.”

Further expansion for fellow fund portfolio company Datlas is also on the horizon, according to Privitera, who added that the company has a long pipeline of acquisitions.

“We are currently in the process of an acquisition of a competitor that covers automation in the telecommunications sector,” he said. “This will more than double the size of the company and will allow for outsourcing of all front- and back-end business processes, which is not yet available in the Italian market.”

The GP is also continuing to analyse four to five different technology platforms that could be integrated into Datlas’ platform, Privitera said. Via the add-ons, the GP aims to improve the services provided by the company and to “provide a more advanced functionality in terms of BPO and intelligence”, he said.

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