Educational investments: Private equity goes back to school

John Bakie
04 October 2010

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With todayтs news that Albion Ventures has given its backing to a new school, one might assume that investing in education, something primarily catered for by the state, is a rare occurrence. However, private equity and venture capital investors have had their sights on the sector for some time. John Bakie takes a look at the fundamentals

Radnor House has today received £8.7m in funding from Albion Ventures, to allow the new, fee-paying school to establish itself. Though it does not open until September 2011, Albion has confirmed its involvement in a project it hopes will expand the availability of high quality schooling in South West London.

Investing in a school may seem a rather unusual choice for a VC, but Albion is confident Radnor House will turn out to be a financially savvy commitment. Partner Emil Gigov, who worked on the investment for Albion, says: "We have been looking at the education sector for some time, as it produces a long-term reliable income."

The investor has previously considered investments in special needs schools and adult education, but was particularly attracted to Radnor House due to high levels of demand in Twickenham and the surrounding areas. Albion was also keen to obtain a substantial asset-based investment, and the bulk of capital provided helped acquire the freehold to the school's setting, debt-free. "Radnor House is the kind of cash-generative business with a stable income that we like, and we continue to be interested in the education sector," Gigov adds.

Radnor House is, of course, not the only time professional investors have looked to education. In August, Auctus Capital Partners made two bolt-on acquisitions for its Munich-based portfolio company Career Partner Group, which offers management, sales and team-building training courses for businesses. Back in the UK, Sovereign Capital acquired Tech Music Schools for £5m earlier this year. It eventually plans to merge the firm with Brighton Institute of Music and believes private music education is a fragmented industry that can benefit from consolidation.

With a healthy income stream, significant cash generation and growing consumer and business demand for education and training services, education certainly has its place in private equity and venture portfolios. However, investors should ensure they do their homework to make the best returns.