Good as Gold: Resilience and Continued Attractiveness of the Global K-12 Sector

The K-12 education sector continues to be an attractive investment opportunity for operators and investors globally. Based on L.E.K.’s recent analysis, within the K-12 space, private K-12 exhibits the most potential for additional growth. Between 2015 and 2019, this sub-segment gained share over public schools across major markets, growing at a CAGR of 2%-3% and enrolling close to 85 million students.

There are a number of factors underpinning the growth of private K-12:

Poor quality of public provisioning
Increasing demand for English-based learning
A focus on education outcomes
A desire for holistic development
The rising affluence of households across emerging markets
Growing expat population across emerging markets

There are certain barriers to entry in the private K-12 market – such as the lead time required to build a reputable brand and a lack of real estate in commercially viable areas – which make the sector even more attractive to investors. Private K-12 schools’ deep understanding of their local markets is another advantage, as are their strong relationships with regulatory bodies, which enable them to secure government licenses and regulatory approvals when needed.

Private K-12 institutions also have a robust business model, with average fee growth that runs at a 2%-3% premium over inflation, long-term revenue visibility, negative working capital requirements and predictable cash flows. Moreover, current market penetration across major cities (in Africa, MENA, APAC and Europe) ranges from just 15%-25%, which leaves significant room for expansion in this sector.

The premium private K-12 market is increasingly gaining share and is poised to grow

Within private, the international and bilingual curricula school market*, across key cities, is sized at US$45 billion-US$55 billion in annual revenue. In some 20 to 25 major cities across EU, APAC, MENA and Africa specifically, the value of the premium segment is estimated to US$9 billion-US$11 billion, and in most of those cities, premium segment has grown faster than the rest of the private market. Strong macro-economic fundamentals, increasing affluence and greater adoption is expected to continue driving stronger growth in this premium private K-12 segment.

Not only is this segment already priced at a considerable premium to mid-priced in private and regular public schools, but its fees in major markets also grew at a premium to inflation between the academic years 2017-2022. It’s also notched strong revenue growth over that period, powered by growing affluence due to higher white-collar salaries in major cities and, in turn, the ability to charge higher fees. The premium private K-12 segment has demonstrated higher resilience than the rest of the private sector during the COVID-19 pandemic.

By 2027, the value of the premium K-12 segment across the world’s top 20-25 cities is expected to grow at a rate of 7%-8% CAGR, with revenues rising to between US$12 billion-US$14 billion — in line with, or slightly faster, than historic rates.

It is clear that a confluence of factors has long been driving demand for K-12 education, but more recently that demand has been focused on the private K-12 market and increasingly, the premium private market. Its robust business model combined with various barriers to entry leave the premium private K-12 sector poised to be a top area of investment opportunity — one with significant room for additional growth — for years to come.

For more details, download L.E.K. Consulting’s analysis of the global K-12 sector.