CRE Alliance invests $40m in Chinese tutoring business

The firm paid $40 million for a minority interest in Shenzhen Scholar Education, which has 60 branches, primarily in Guangdong province. It provides K-12 out-of-school tuition in subjects such as mathematics, Chinese, and English. Many of these students are preparing for the national college entrance examination.

The investment is essentially a play on the increasing means and motivation of Chinese parents to invest in their children’s education. There was no formal process, but the founder had been approached opportunistically by other private equity investors before he decided to work with CRE Alliance, according to a source familiar with the transaction.

The immediate priority is expansion. There are only two national players in the K-12 tutoring space – New Oriental Education & Technology Group & TAL Education Group – but together they are said to control less than 4% of the market. Shenzhen Scholar sees opportunities for consolidation, primarily by taking business from the thousands of small-scale operations. However, significant bolt-on acquisitions in other provinces would also be considered.

The market was worth RMB400-500 billion ($63-79 billion) in 2017 but is expected to double in size over the next four years, the source added. The key growth drivers include students using tutoring services from a younger age (grade two or three rather than grade five or six), more subjects per student, and rising fees. These are in turn the result of parental anxiety about their children getting into better-quality universities.

CRE Alliance is led by William Shen, formerly head of Greater China at Headland Capital Partners. The firm has a $500 million US dollar-denominated growth fund – with all the capital coming from the two parent companies – and targets investments in the $30-150 million range.

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• Topics
• Greater China
• Consumer
• Expansion
• China
• Education
• CRE Alliance