Opportunities in the

China Education Market Prepared for the HKVCA-Parthenon MasterClass

Hong Kong

December 2014

2 Parthenon

Interest in Education sector in Emerging Markets is increasing

Completed M&A Activity in

Emerging Private Education Markets, 2000-2013

0

200

400

600

800

1,000

2002-2004

Others

n=101

2005-2007

Others

Asia

n=349

2008-2010

Others

Asia

n=637

2011-2013

Others

Asia

n=788

16% 51% 57% 52%% Deals inAsia

3 Parthenon

China is the largest private Education market in Asia

Private K-12 and Higher Ed Market Sizes in Asia, 2012

India

$8B

Singapore

$2B

China

$14B

UAE

$1.5B

Malaysia

$3B

4 Parthenon

Growth in China is being driven by increasing affordability…

China Annual Disposable Income and Population in Major Education Target Age Group, 2008 – 2018F

0%

20%

40%

60%

80%

100%

2008 2013 2018F

Households with

annual disposable

income above $35K

Households with annual disposable income above $35k are expected to continue growing at

21% per year

5 Parthenon

…And low penetration of private services

0

5

10

15

20%

Branded Organized Tutoring

~20%

Study Abroad

~7%

Penetration (Enrollment/No. of Students Who Can Afford), 2013

6 Parthenon

0

20

40

60

80

100%

Higher Ed

Independent Colleges

Private Colleges

Private Universities

$12.3B

ELT

PreK-12

Adult ELT

$4.6B

PrivateK-12

Inte

rnatio

nalC

urr

iculu

mD

ualC

urr

icu

lum

$1.5B

Tuto

ring

One

on

One

Cla

ssro

om

$0.9

B

Stu

dy

Abro

ad

Top 8Cities

Others

$0.8B

Pre

miu

mP

re-K

En

glish

Fo

cuse

dM

an

da

rin

Fo

cuse

d$

0.5

BO

ve

rse

as

Te

stP

rep

IEL

TS

TO

EF

LO

the

rs$

0.4

B

Total = $21.1B

The total Chinese private education market is $21B

Market Size of the China Private Education Market, 2013

7 Parthenon

Major Investment Themes

• Early Years

– Pre-K

• English Language

– ELT

– Dual Curriculum Schools

• Study Abroad

• Education Tech

8 Parthenon

Dual language offerings are growing faster

0

20

40

60

80

100%

Super-Premium($8+K)

English Focused

Mandarin Focused

13K

Premium ($4K-8K)

English Focused

Mandarin Focused

59K Total = 72K

Enrollment of Premium Pre-K Chains in the Seven Largest Cities, 2012

0-5%

5-10%

10-15%

15-20%

CAGR Growth

9 Parthenon

Major Investment Themes

• Early Years

– Pre-K

• English Language

– ELT

– Dual Curriculum Schools

• Study Abroad

• Education Tech

10 Parthenon

China has among the lowest in-school provision of English language

0

2

4

6 Hours

India

Num

ber

of

Eng

lish

hours

~6

Malaysia

~5

Thailand

~5

Hong Kong

~5

China

~3-4

Japan

~3

Vietnam

~2-3

Number of Hours of English Language Provision/Week in Schools

11 Parthenon

The ELT market is forecast to continue growing at ~13% a year in

the major cities

0

500

1,000

1,500

2,000

2011

$630M

2014

$970M

2018F

Top 7 Cities

$1,600M

'11-'14

8.9%

CAGR'14-'18

12.6%

CAGR'11-'14

8.9%

CAGR'14-'18

12.6%

CAGR

ELT Market Size by City, 2011-18F

12 Parthenon

Dual curriculum market in the 7 largest cities is ~$550M and enrolls ~54K

students

Market Size of Dual Curriculum Schools by Cities, 2012

0

20

40

60

80

100%

Beijing

School 21School 32School 17School 33School 24School 22

School 23

School 30

School 14School 13

School 12School 11School 10School 9School 6

School 5

School 4

School 3

School 2

School 1

$244M

Shanghai

School 17

School 16

School 3School 14

School 13

School 12

School 11School 10School 9School 8School 7

School 6

School 5

School 4

School 3

School 2

School 1

$148M

Guangzhou

School 3

School 2

School 1

$67M

Shenzh

en

School 5

School4

School3

School2

School1

$30M

Chengd

u

School4

School3

Scho

ol2

School1

$16M

Suzh

ou

School3

Schoo

l2

Sch

ool1

$33M

Hangzh

ou

School

4

Sch

ool3

Sch

oo

l2S

cho

ol1

$10M

19K 13K 7K 4K 3K 5K 2K

13K 11K 9K 7K 6K 6K 4K

21 20 3 5 4 3 4

TotalEnrollment

AveragePrice ($)

Number ofSchools

Total =$546M

> 80% Utilization

60% to 80% Utilization

< 60% Utilization

All schools with

<60% utilization

established their

international

programs within the

last 5 years or added

capacity within the

last 3 years

13 Parthenon

Regulatory Landscape – Shanghai Example

Licensing Fee Control

• G10-12 international programs looking to continue

operations need to be inspected and accredited

by the Shanghai Education Committee

• All international program operators must own

private school licenses and have qualified faculty

• Public schools are not allowed to partner with

external operators for international program

operations

• Intended number of new enrolments and tuition

fee changes of all international programs need to

be reported to and approved by the local

education committee

• Public operators are not allowed to charge

premiums on international programs; tuition fees

must be set at the same as the schools’ regular

PRC curriculum programs

14 Parthenon

Major Investment Themes

• Early Years

– Pre-K

• English Language

– ELT

– Dual Curriculum Schools

• Study Abroad

• Education Tech

15 Parthenon

The flow of Chinese students studying is expected to grow at 15%

for next four years

0

200

400

600

800

1,000K

2010

262K

2012

375K

2014

503K

2018E

UK

US

ANZ

EA

CA

869K 10-13

18%

CAGR13-'18E

15%

CAGR

Number of Chinese Students Commencing Overseas Education, 2010-18F

16 Parthenon

Business based on the study abroad theme are witnessing growth

0

0.5

1

1.5

$2B

2010

$0.2B

2013

$0.7B

2018F

Top 8Cities

Rest ofChina

1.7B

37%

54%

(10-13)

47%

CAGR

17%

35%

(13-18E)

21%

CAGR

China Total Organized Test Preparation Market Size , USD,

2010-18F

China Total Agent Market Size, USD 2010-18F

0.0

0.5

1.0

RMB1.5B

2010

$0.3B

2013

$0.6B

2018F

ROC

Top 8Cities

$1.2B

24%

22%

'10-'13

23%

CAGR

16%

18%

13-'18F

17%

CAGR

17 Parthenon

Major Investment Themes

• Early Years

– Pre-K

• English Language

– ELT

– Dual Curriculum Schools

• Study Abroad

• Education Tech

18 Parthenon

Education Technology Adoption increases significantly once efficacy is proven

to customers

0.0

5.0

10.0

15.0%

Early Adopters

1.5%

Followers(Will Adopt If Proven)

6.0%

In 5-10 Years(Potential Long-Term

Adoption)

15.0%

Increase

to ~4x

Potential Online Curriculum Adopters as Percent of Population,

Based on a Survey of 2,000+ Chinese, Brazilian, South African, and Indian Parents

19 Parthenon

In China, parents in Tier 1 cities, especially those with a “professional”

background, are more willing to support online education for their children

Willingness of Adoption by

Profession

China

Tier1

Tier2

Tier3

5x

1.7x

x

China

Pro

fess

ional

x

4.5x

China

Earl

yA

dopte

rs

2xhours

xhours

Willingness of Online Adoption by

City Type

Time Spent Per Day With Child for

Education by Profession

20 Parthenon

• Student Acquisition

• Site Selection

• Pricing

• Operations Improvement/Cost Optimization

Value Addition Opportunities Among Chinese Education Companies

21 Parthenon

About Parthenon and the Education practice

About Parthenon and EY

Parthenon combined with Ernst & Young LLP on August 29, 2014. Parthenon is a leading advisory organization focused on strategy

consulting. We are committed to combining our unconventional thinking with our clients’ smarts to deliver actionable strategies. In

today’s complex business landscape, creativity has become a necessary ingredient for sustained success. Together with EY, we

have an ideal balance of strengths – specialized expertise with broad executional capabilities, intimate client relationships with

larger networks of support, and proven processes along with a progressive spirit – to unlock opportunity for our clients, amplify the

impact of our strategies, and make Parthenon the global partner of choice for business leaders.

About Parthenon’s Education practice

Parthenon has served as an advisor to the education sector since our inception in 1991. Our Education practice – the first of its kind

across management consulting firms – has an explicit mission and vision to be the leading strategy advisor to the global education

industry. To achieve this, we invest significantly in dedicated management and team resources to ensure that our global expertise

extends across public sector and non-profit education providers, foundations, for-profit companies and service providers, and

investors. Parthenon has deep experience and a track record of consistent success in working closely with universities, colleges,

states, districts, and leading educational reform and service organizations across the globe.

Follow Us for Regular

Updates

Twitter | @Parthenon_Group

Facebook | www.facebook.com/ParthenonGroup

LinkedIn | www.linkedin.com/company/the-parthenon-group

EY | Assurance | Tax | Transactions | Advisory

About EY

EY is a global leader in assurance, tax, transaction and

advisory services. The insights and quality services we

deliver help build trust and confidence in the capital

markets and in economies the world over. We develop

outstanding leaders who team to deliver on our

promises to all of our stakeholders. In so doing, we play

a critical role in building a better working world for our

people, for our clients and for our communities.

EY refers to the global organization, and may refer to

one or more, of the member firms of Ernst & Young

Global Limited, each of which is a separate legal entity.

Ernst & Young Global Limited, a UK company limited by

guarantee, does not provide services to clients. “Parthenon”

and “Parthenon-EY” refer to the combined group of

Parthenon and EY professionals providing strategy

services worldwide. For more information about our

organization, please visit ey.com.

Ernst & Young LLP is a client-serving member firm of

Ernst & Young Global Limited operating in the US.

© 2014 Ernst & Young LLP.

All Rights Reserved.

This material has been prepared for general informational purposes

only and is not intended to be relied upon as accounting, tax, or other

professional advice. Please refer to your advisors for specific advice.

ey.com