Deal focus: KKR brings impact to the classroom

KKR’s first meeting with Vietnam-based school operator EQuest Education came in 2020 when COVID-19 was at its peak. Underwriting an investment in a business subject to protracted closures wasn’t easy, but the private equity firm’s due diligence fueled a conviction that EQuest was strong enough to prevail in a challenging environment. KKR invested in May 2021 and helped the company complete four acquisitions.

“The EQuest team has a very impressive track record of delivering both organic and inorganic growth, with a proven and repeatable track record in M&A integration and value creation,” observed Ivan Kwong, a principal in KKR’s global impact team. The investment came from the firm’s debut global impact fund, which closed on USD 1.3bn in 2018.

The stand-out acquisition of the four was arguably Khoi Nguyen Education Group (KNE), operator of several bilingual schools including Canadian International School (CIS), last December. It is now part of a portfolio comprising at least 10 K-12 bilingual schools, numerous tertiary and vocational educational institutions, programmes focused on English enrichment, and digital learning services.

KKR recently re-upped in EQuest, contributing to a USD 120m round that comprised debt and equity. The proceeds will be used to build out CIS in Ho Chi Minh City (HCMC)and expand the campus network of Broward College Vietnam – which offers US bachelor’s degree programmes – in Hanoi, Hue, and HCMC.

For many private equity investors in Asia, after-school tuition has been the prominent theme in education, tapping into pressure placed on students to outperform in examinations. In EQuest, KKR is not only backing an in-school, on-campus provider, but also a company that prioritises holistic education: the development of creative, physical and leadership skills is as important as academic achievement.

“Schools that do well tend to build a really strong brand and cultivate a very sticky student base. From a student's learning perspective, it's better to have higher quality schools in the first place rather than try to remedy or supplement it with after-school tuition,” Kwong added.

EQuest serves more than 362,000 students, up from 110,000 when KKR first invested. However, the list of potential acquisition targets is far from exhausted. Bilingual K-12 education in Vietnam is highly fragmented and EQuest – a leading actor in the space – wants to play the role of consolidator. Moreover, private players account for just 2% of all schools and the government would like to change that.

“The government has been very supportive of bilingual education and learning English as Vietnam continues to globalise. We want to contribute to that national agenda, and we believe that high-quality and holistic K-12 education with a strong English emphasis will go some way in achieving this goal,” said Nguyen Quoc Toan, co-founder, chairman, and CEO of EQuest.

For the same reason, the company also offers English training in public schools through iSmart, which uses interactive technology and digitised curricula to teach English through mathematics and science. Relying on digital content and with no need to pay rent, this programme costs about USD 3 per student per hour compared to USD 10-USD 20 typically charged for courses taught in English training centres.

The impact angle

KKR had previously tasked Mission Measurement, a third-party consulting firm, to conduct impact assessments of its US-based education investments. Mission Measurement did the same with iSmart, which involved analysing more than 70,000 data points. It found that students at the year five level performed 10%-20% better than peers from the same school who didn’t use iSmart.

“Whether it's offline education or online education, efficacy is key to everything. With iSmart, we're serving over 100,000 students across public schools throughout Vietnam. Proving the efficacy of the product is very important to us, not only from an impact measurement perspective, which is a crucial part of our fund strategy, but also from a sales and marketing standpoint,” said Kwong.

KKR also ran a third-party cybersecurity review at EQuest to ensure the company is adhering to global best practices. The private equity firm has a dedicated in-house team that will help the company implement whatever recommendations may emerge.

KKR’s global impact strategy follows four investment themes: climate action; sustainable living, which includes waste management, recycling, sustainable packaging, and agriculture; lifelong learning; and inclusive growth, which covers financial inclusion and financial services. There have been seven impact investments in Asia to date, including New Zealand-based learning platform developer Education Perfect.

To qualify as an impact investment, a company must deliver attractive, risk-adjusted returns and meet three additional criteria: contribute a locally relevant solution to the Sustainable Development Goals through a core product or service; generate impacts that are measurable, using metrics sourced from third-parties; and improve ESG (environment, social, and governance) performance.

“We’ve invested heavily in Southeast Asia, India, Australia and New Zealand. We are committed to broadening that out with opportunities in both emerging and developed markets,” Kwong added. “Our strategy is to establish a strong presence in regions where KKR is already established. We are actively seeking opportunities in China, Japan and Korea where we haven't made any impact investment yet.”

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• Topics
• Southeast Asia
• Expansion
• Consumer
• Vietnam
• Education
• KKR
• Impact investment