Why Investec is bullish on Africa's education sector

Investec's Peter Baird says the sector is defensive given the demand for quality education.

The Investec Africa Frontier Private Equity Fund 2, a private-equity fund managed by Investec Asset Management, has acquired a controlling stake in private-college operator Richfield Holdings. For the private-equity fund, which has investments from transport and logistics to technology, Richfield marks its first investment in the education sector.

Investec joins its private equity peers – Actis, Metier Capital, Development Partners International, and PSG Group - that have poured investments in Africa’s private education sector. The purchase of an undisclosed stake in Richfield is a coup for Investec. 

Richfield operates more than 40 campuses in South Africa with more than 20,000 students. It offers a wide range of accredited Higher Education degrees, diplomas, and certificates as well as technical and vocational training courses. Peter Baird (pictured), the Managing Principal for Investec Asset Management's Africa Private Equity funds, spoke to M&A Africa about the Richfield deal.

 

M&A Africa: Why is Investec interested in the education sector?

Peter: There is a persistent gap in South Africa between the supply and demand for education. And that is a nice market to be growing into, given that the demand for high-quality tertiary education and graduates in South Africa is infinite. We think the education sector is defensive and we are investing in a sector with a high return on equity potential. 

M&A Africa: What is it about Richfield that is appealing to Investec?

Peter: Richfield is designed for high-quality degrees in useful subjects. 96 percent of its students are black South Africans, of whom 85 percent come from households with an annual household income of less than R120 000. Tertiary education into this market segment is deeply transformational. On average a Richfield graduate increases his/her household income four-fold within five years of graduating.  
The scariest words in South Africa are “unemployed and unemployable”. There are millions of young people that are unemployed and unemployable. But the ones who we get through Richfield degree programmes or other forms of higher education become hugely employable. 

M&A Africa: Technology is rapidly changing education. How does Richfield feature in this trend?

Peter: Although only a small portion of their learning is at distance, Richfield is very tech-enabled. For example, every new student gets a free Vodacom tablet and unlimited free data on campus. They run everything operationally through these tablets. There is zero paper involved in Richfield. You get the best of having lecturers in a room and contact with other students. But you also get world-class lectures and high-quality course material delivered electronically. 

M&A Africa: Is this a long-term investment?

Peter: Our average investment period is five to seven years. Over the course of five to seven years, we really think we can build Richfield into something big and great. Richfield has all the backbone elements of a great tertiary education. 

M&A Africa: How will Investec’s investment help Richfield?

Peter: We have a huge pool of capital and we are looking to distribute it.  We are talking about an expansion strategy internationally. We can easily put up new campuses in multiple African capitals. 

M&A Africa: Is M&A activity and the level of deal flow currently robust?

Peter: Business confidence in South Africa has surprisingly come back a lot in markets such as education, healthcare and business services. Business confidence is back but investor confidence isn’t. We are finding African private equity deal flow is always a feast or famine. And right now, it is a bit of a feast. 

M&A Africa: Are there at least good deals out there?

Peter: We are seeing many good companies with real growth plans and strong management teams. They just need capital. There is not a lot of people providing that private equity risk capital. We are seeing great companies at great valuations and we trying to deploy capital as fast as we can in a responsible way. A number of bigger private equity players have left the market and other sources of capital are on the sidelines. It's only a good time to be investing. But it’s a long-term game and there is no good way to time the market.