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A co-investment perspective on education
Written by | Thibaud Roulin Head of North America - Private Equity Pictet Alternative Advisors |
What should people know about private equity co-investments in general?
Co-investments are joint investments made by two or more investors, typically including a lead sponsor from a private equity firm and at least one other co-investor. For us in Pictet’s private equity multi-manager team, there are several potential benefits of being one of these co-investors. We can obtain exclusive access to unique opportunities alongside best-in-class private equity managers. We can strike highly favourable economic terms as we are investing directly in a company rather than via a fund, which all else equal may imply more attractive returns for our clients. We can perform additional due diligence on the specific company, as well as having access to the lead sponsor’s independent analysis, giving us greater confidence in the margin of safety and ultimate potential performance. And co-investments can also help us build more diversified exposure to a wider range of sectors, geographies, and company maturities in our portfolio.
But of course it also has to be mutually beneficial for the lead sponsor. What they gain from bringing co-investors on board for a transaction is greater equity firepower, which broadens their opportunity set to help them buy larger companies than would otherwise be possible for them. It also helps them to form a large pool of capital without having to partner with another private equity manager, add their co-investors’ specific expertise to the transaction and/or company, better manage their portfolio exposure and concentration risk, and strengthen their relationships with their existing or prospective investors.
How much experience does Pictet have in co-investments?
We are very much a pioneer in co-investments, with Pictet having made its first private equity co-investment in 1992. Since then, we have committed $5.4 billion to co-investments so far, across more than 300 co-investment deals that we have executed. Today, we receive more than 300 co-investment opportunities each year, of which we review around 90 of the most promising, and then seek to invest in approximately the 25 best companies.
Do you have any investments in the education sector?
Yes, but first it’s important to emphasise that we are not top-down investors who start with sectors. Instead, we seek to back companies to help them achieve their full growth potential after identifying them by applying the investment criteria we have refined over more than 30 years. These criteria begin by aligning with top-tier private equity managers as the lead sponsor, who have deep sector experience, a strong focus on operational excellence and value creation, and a demonstratable track record across multiple cycles.
With those co-investment partners, we are looking for high-quality businesses with large addressable markets, clear goal-driven growth paths, multiple levers for value creation, and a first-class management team with a cautious approach to financial leverage.
So with that bottom-up process, how did you come to invest in the education sector?
We were approached by an independent sponsor that sourced an opportunity in the Swiss education market, which is very distinct from other geographies. Like in other countries, education is mandatory until the age of 16. Also similar to elsewhere, after the end of compulsory schooling students have the option of pursuing vocational education. What is different from other places, however, is that in Switzerland the vocational route is very popular. Almost two-thirds of Swiss pupils follow this path, rather than going on to baccalaureate or specialised schools (Figure 1).
This is not only a well respected choice in Switzerland; it is also a well rewarded one. A 2023 report by the country’s official statistics office found that an individual’s median income was 46% higher six years after obtaining a higher vocational training qualification than five years beforehand (around CHF 7,800 gross per month for a full-time position, versus CHF 5,300 pre-qualification).1 The company we backed primarily served students already in their professional career who attend evening classes in order to obtain a diploma that will help them advance their careers and increase their salaries, typically with about a one-year payback.
This all makes vocational education in Switzerland a large and, for students, valuable market. At the same time, however, it is also a very fragmented industry. When we first looked at the provider in which we ultimately invested, it was the clear market leader in the business segment with no competitor with similar market share and a long tail of smaller operators. This gave us confidence that we could employ a proven ‘buy and build’ playbook to create value, given the tangible upside potential from acquiring smaller rivals and completing the school’s offering in other fields not yet covered by the existing curriculum.
We also saw that the company had a right to win on its own terms, with a strong reputation in the market and solid student outcomes. This further reinforces the stability of a business model where students enrol for multi-year programmes, giving good visibility on revenues, and that is fundamentally asset light with low fixed costs.
The independent sponsor we partnered with was well known to us before the deal, managed by experienced private equity experts in education. It also helped that this was a Swiss business, as we naturally have deep roots in the country and could be proactively involved through board participation. The societal contribution was important to us too, as we can see the positive influence these vocational educational qualifications have on students and for the economy in general.
How has the business developed since your investment?
We are delighted to have helped the company expand into new educational disciplines. At the time of our investment, the company had a strong presence in business and tourism programmes. Through acquisitions, it has now broadened its offering considerably, in particular into other business specialisms like marketing or HR but also into alternative medicine and complementary therapies. The management team has also been significantly strengthened since we acquired the company, including with the additions of a new chief financial officer, a new chief learning officer and a new chief marketing officer.