Bain sees investment success as a learning process

Children learn English at an early education center in Beijing. The value of the Chinese private education market was 426 billion yuan ($69.3 billion) in 2012, and it will rise to 640 billion yuan by 2015, according to a report by Deloitte Touche Tohmatsu Ltd. [Photo/China Daily]

A successful investment by a private equity firm is a team effort.

That is what Wang Lihong believes. The managing director of Bain Capital Asia has made it a top priority to improve the strategic development and operational efficiency of the firm's invested companies in China.

Bain Capital has made 12 investments totaling more than $1 billion in the nation in the industrial, consumer, technology, education and service sectors. Those deals include an investment in Gome Electrical Appliances Holding Ltd.

Four deals have been cashed out so far: Sunac China Holdings Ltd, Greatview Aseptic Packaging Co Ltd, Feixiang Chemicals (Zhangjiagang) Co Ltd and CTV Golden Bridge International Media Co Ltd.

The other eight are maintaining an average of 20 percent revenue growth.

"We choose a good sector, a good company with core competitiveness, and we will make good returns after offering valued-added services," Wang said.

The firm's latest investment is a majority stake in Rise, a provider of after-school English language programs for children aged 3 to 12 years old in China. According to the Asian Venture Capital Journal, the investment amount was $140 million.

"We've been watching the Chinese education sector for a long time and looking for potential investments in early education, English training, private high schools and vocational training," said Wang.

The value of the Chinese private education market was 426 billion yuan ($69.3 billion) in 2012, and that will rise to 640 billion yuan by 2015, according to a report by global consultancy firm Deloitte Touche Tohmatsu Ltd.

A survey by Sohu.com in 2013 found that 57 percent of respondents indicated an interest in after-school English language lessons for their children.

"We have a high regard for Rise because it is not only in a good sector, but it also has very good content and offers many subjects in English, which enables students to learn the language as well as a subject," said Wang.

The curriculum is based on that developed by Houghton Mifflin Harcourt Co, an educational and trade publisher in the United States. Rise has exclusive rights to use the curriculum and modify it for Chinese children.

Rise was founded in 2007. By 2013, its founders were looking for investors who could take over the company. Bain Capital was their first and only choice.

Bain Capital took its stake in Rise at the end of 2013 and Wang became its non-executive chairman. Bain invited Sun Yiding, then president of Gymboree China, to serve as the chief executive officer.

At the time of Bain's investment, the training company had 34 self-operated centers as well as 126 franchised ones around China.

"We are planning to provide more services and courses," said Wang, adding that the company has launched summer camps, advanced courses and a reading library.

A mobile application offers class schedules and information on students' performance.

"Opening more self-operated and franchised centers is another of our goals," Wang said.

She said the company will set up eight self-operated centers in Beijing, Shanghai and Guangzhou this year, along with two joint ventures in Shenzhen.

"We are also in discussions with companies about mergers and acquisitions, so we may have 45 or 46 self-operated centers by the end of this year," Wang said.

As for franchised centers, Wang said, Rise intends to provide more services and set up a ranking system to encourage improvement.

As of the end of 2013, the number of students in Rise's self-operated centers exceeded 20,000. That number is expected to reach 30,000 by the end of this year.

About 70 percent of Rise's students choose to continue their studies for another year, compared with an industry average of about 50 percent.

The number of teachers in self-operated centers stood at 653 as of last year, and the number is forecast to be more than 700 by the end of 2014.

Wang said that Rise's teachers are usually college graduates aged from 22 to 26. Because most of them teach at night or on the weekend, there is high turnover, so the company is working on performance incentives to retain staff.

Other high-end English education institutions for children include EF Education First, Wall Street English and Disney English.

Wang said the company's research indicates that there are about 26 million children aged from 3 to 12 in the top 100 cities in China, meaning there is a huge pool of potential students.

"Rise has grown into the second-largest high-end English education company for children, and we only teach about 30,000 students, so the market is huge for us to explore," said Wang.

Bain will exit its investment in Rise either through an initial public offering or an M&A deal, but it does not yet have a timetable for that move.

Elaine Wong, a partner and co-founder of Hao Capital, a China-focused private equity firm, said that it is also taking a close look at the private education market, especially test preparation and early education.

Her company just made an investment in the Beijing-based Universal Education Group in July in partnership with Baidu Inc and California-based Doll Capital Management, but financial terms were not disclosed.

"We have confidence in the development of online education, and the Internet may improve the efficiency of the traditional education market and influence its business structure," said Wong.

She said that the private education market in China is highly fragmented, with few institutions succeeding in most regions.