Equity Magazine November 2017

EDUCATION
Sunny Varkey was a little over three
years old when his parents left him in
the care of family members in India as
they made the haul to the UAE in
search of – figuratively – greener pastures.
When the Varkeys moved to Dubai in the late
Fifties, the then British protectorate was little
more than desert. When Sunny Varkey’s father
wasn’t working for the British Bank of the
Middle East, him and his wife would teach
English to local Arabs, including members of
the royal family.
With the discovery of oil and the influx of
expats from the Asian subcontinent, Sunny
Varkey’s parents saw the demand for their
services grow. To the point that they seized the
opportunity and founded Our Own English
High School in 1968. By then, Sunny Varkey,
who had completed his education at the St.
Mary's Catholic High School in Oud Metha
followed by a year at Bembridge School on the
Isle of Wight in Britain, was employed with
Standard Chartered. While working at the bank,
he stumbled upon his manager’s salary. "I
thought, if I end up being a banker, I will not be
able to develop in life," he told The Guardian.
In the Eighties, when Arab authorities
demanded that the Our Own English High School
be refurbished, Varkey decided to lift that weight
off his parents’ shoulders and oversaw operations
of the school. Today, Global Education
Management Systems (GEMS) Education boasts
schools and education services across 14 countries.
We could give you more stats and figures in a bid
to shock and surprise you, but we’d rather talk in
the universal language of money. GEMS
Education, backed by private equity firms
Blackstone Group LP and Fajr Capital Ltd,
reported unaudited earnings of $539.1 million for
the six months to February 2017 – up 18 per cent
from the same period the year before.
The best part about Varkey’s business model:
It’s recession proof. That, ladies and gentlemen,
is the beauty of investing in education. Sunny
Varkey took a singular school, saw the
opportunity, and created an empire with outlets
not dissimilar to a fast-food chain while offering
private education at varying rates, akin to airlines
with budget and high-end flight options.
If you’ve been paying attention to the markets
in the West, you will have noticed that investors
are starting to look past the conventional office,
retail or industrial property as investment
opportunities. Instead, alternative real estate
assets are rising in popularity owing to their
higher returns. Niche alternatives within the
healthcare and educational sectors outline lower
transactional volumes, less liquidity, lower
transparency and can produce higher yields than
traditional commercial property assets.
According to a comprehensive report by
American professional services and investment
management company, Jones Lang LaSalle
Incorporated (JLL), at least 1,100 additional
schools will be required in Dubai, Abu Dhabi,
Jeddah, Riyadh and Cairo by 2020 to cope with
the increasing demand – 350 of which will need
to be private schools. These private schools
provide a significant opportunity for investors.
“The education sector has sparked the interest of
many real estate investors right across the MENA
region,” says Craig Plumb, head of research at
JLL Mena. “Private equity firms, in particular,
have been very active in recent years, and they
will continue to play a pivotal role in the
expansion of the private education sector here.”
If that isn’t enough to pique your interest, you
should know that between 2010 and 2015, about
Dhs2.3 billion ($626 million) was invested in 45
schools in Abu Dhabi alone. The level of
investments in the school market has increased by
22 per cent, bringing $2.7 billion into the education
sector, reshaping the landscape of education
locally. As innovation and technology will reform
the outdated curriculum and attract skilled
workforce into the system, the education sector
will provide many chances for profit.
Here’s the kicker: Per Khaleej Times
“Investors who canvas these type of alternative
solutions, either as a real estate asset or as a
private equity can earn 15 to 20 per cent more in
margins compared to eight to 10 per cent return
from a conventional property.” Think of it this
way: In five years (give or take a few) you could
either be the guy at home, sitting on his couch,
Netflix-ing a series about another guy who made
it big by playing the education system, or, you
could be the guy the series is about.
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EQUITY