Silver Lake joins $3.3b investment in China's TAL Education

The private equity firm's commitment is part of a $3.3 billion capital raise, including $1 billion in newly issued shares. The notes issue and the equity component of the transaction will account for 4.3% and 2.2% of the company’s outstanding shares, respectively.

TAL stock traded marginally higher following the announcement of the investment, closing at $68.60 on December 29, giving the company a market capitalization of about $27.4 billion.

This is Silver Lake’s third major investment in K-12 education in the past two years and its second in Asia. The US GP led a $500 million round for Indian tutoring platform Byju’s at a valuation of $11 billion in September. It acquired a controlling stake in Weld North Education, a similar company in the US, from KKR in 2018.

The unifying theme in this activity has been confidence in the recently accelerating trend of K-12 digitization. “We are pleased to invest in TAL as China's leading edtech platform and have strong conviction in the company's leadership position and growth prospects in the education space,” Ken Hao, chairman of Silver Lake, said in a statement.

TAL, which stands for Tomorrow Advancing Life, is one of China’s leading after-school tutoring services providers with a network of 936 learning centers in 91 cities as of August. The company, which has traditionally focused on small classes and personalized offline tutoring, has pushed aggressively into online operations in recent years, notably via its JiaZhangBang platform.

Revenue grew 28% year-on-year during the 12 months ended February to $3.3 billion. The company posted a loss of $110 million versus a net profit of $367 million the previous year. This was in part due to a correction of falsified financial statements, for which TAL said the responsible employees had been taken into police custody. The company also noted a lag in income generation from its newer areas of operation and external investment.

Schools and other educational establishments were forced to close earlier in the year as China battled COVID-19. TAL acknowledged in its earnings statement for the quarter ended February that offline operations had been impacted. However, this was partially offset by growth in its online business. As of August, the company said operations were returning to normal.

TAL been an active investor in edtech start-ups, including the likes of Kaishu Story, a Chinese storytelling app that raised $66 million in February, and Eeo Education, a Beijing-based platform provider also known as ClassIn that received a $265 million Series C round in October. TAL is also an investor in India’s Vedantu, an online tutoring service that raised a $100 million Series D in July.

The Silver Lake deal coincides with a spate of significant investment activity in online K-12 education in China, including a $1.6 billion Series E earlier this week for Zuoyebang, which claims to be the largest online player locally. Meanwhile, Yuanfudao raised a $2.2 billion Series G in October at a valuation of $15.5 billion. It reportedly raised an additional $300 million this week from Yunfeng Capital.

It is estimated that Zuoyebang, Yuanfudao, US-listed GSX Techedu, and the online units of TAL and New Oriental Education & Technology together control about 80% of China's large-class K-12 space.

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