Since the coronavirus outbreak in Vietnam in late January, Phan Thi Thuy, a 32-year-old Hanoi resident, has been telling her third-grade daughter to learn online through her school’s app every day.
In an effort to curb the spread of the virus, schools and education centres in the country have been closed for two months and have aggressively adopted online learning. However, not every education business was prepared for this shift.
“Luckily, my daughter’s school completed its online system last year, so the students don’t have to rely on other platforms. I know a lot of students and teachers who have used Zoom for classes recently, but the service has been overloaded and interrupted,” Thuy said.
Vietnamese parents have no other option than letting the kids take their everyday classes via screens. “But it is tough,” sighed a mother who sends her son to Vinschool.
Although it is not required, private K-12 schools in the country have taken their curricula online – a step that was supposed to be implemented within their campuses. While there is no certainty on when the pandemic will end, schools have been closed since the start of February and the new academic year is scheduled to begin before September.
“We are under great stress monitoring our children’s online studying, but we have no choice,” the Vinschool parent said.
As a result of the virus situation, both private education businesses and investors now view blended learning as a guarantee for growth and sustainability.
A wake-up call
“The Coronavirus outbreak is a wake-up call to the education sector,” said Nguyen Quoc Toan, co-founder and CEO of TAEL Partners-backed education group EQuest and a former partner at EY.
If the situation persists for six months, 80 per cent of private education businesses will see an over 50 per cent decline in revenue, besides inflated costs in re-hiring foreign teachers if they leave Vietnam, according to a proposal letter by a group of 150 Vietnam-based education groups.
“Mom-and-pop players might not be severely affected, but larger chains will be burdened by fixed costs such as rents and maintenance,” added Toan. “Education businesses can secure a stable cash flow, but they are not as super profitable a sector as people may think.”
While saying that businesses should all be prepared that their expected valuations cannot be reached, he also asserted that COVID-19 will not create big changes to valuations and investment activities, given that education is an essential sector.
That said, the deal-making process is still expected to be lengthier in these volatile times.
“I expect deal activity to slow down since investors might prefer to preserve cash for existing portfolio companies. In a similar fashion, companies might also defer their expansion plans in this uncertain situation,” said Raj Shastri, partner at education-focused private equity firm Kaizenvest.
A blessing in disguise?
Yet, both founders and entrepreneurs are seeing a silver lining in the crisis.
Everest Education, a Hendale Capital-backed company operating in the afterschool segment, has adopted blended learning since its inception and is investing further in its online platform.
“We have been incredibly lucky in this situation. Our staff moved all our students online within one week. And now, 98.5 per cent of our students are enjoying themselves in our online live classes,” said Tony Ngo, co-founder of Everest Education.
The blended learning model, combined with the financial support from investors, has enabled the startup to offer free online math and English courses until 19 April 2020, and discounts on its IELTS test prep classes, Ngo revealed.
Hoa Sen University, a higher education brand of Nguyen Hoang Group, has seen its online learning system accessed more than 2.7 million times during the first semester of this school year.
EQuest is also an early adopter in online services before COVID-19. It acquired e-learning website 789.vn last year and has recently launched iSmart Education, the digital version for its offerings.
Ho Chi Minh City-based YOLA has also converted 90 per cent of its students to online classes. The company recently launched YOLA Smart Learning (YSL), which was still under trial before the pandemic happened. Since the beginning of March, new enrollments to YSL have accounted for 25 per cent of the company’s total enrollments.
“The environment has forced customers to study online which I believe will lead to innovation of online and blended business models in the future,” said Shastri, an investor in YOLA.
The response to the novel coronavirus by education firms has strengthened the belief that further ahead, online models will sustain and create new avenues for growth.
Vietnam boasts a 70 per cent internet penetration, according to Datareportal. However, the country is behind the curve compared to many other education markets, from the US to China and India, Ngo said, asserting that e-learning could become a $750 million market in Vietnam by 2030.
In 2018, Vietnam introduced Decree 86 to encourage foreign investment in the education sector and enable foreign-invested schools to enrol more students. Today, with the surge of technology, education businesses need even more regulatory support.
“Online learning should be legalised to enable private schools to proactively assure education quantity and quality. The recognition of the legality in education would mean enhancing the digitalization of the sector, and effective response to future pandemics,” reads the proposal letter by local private schools.
Another major challenge in promoting e-learning, according to Toan, is educating parents to use digital products in the long run.
“Access to EQuest’s online platform has increased more than 60 times, but I am not that optimistic because parents need to be educated about the benefits of blended learning in the long term. Government policies should support online learning in the long term rather than short term fixing,” he said.
As one of the few advocators of online learning, another Vinschool parent said: “I think this is a good opportunity for my daughter to practice self-discipline. But I expect in the future, the teachers will design tailored programs for the kids.”
To many others, the current quick responses to the COVID-19 situation by the schools are just “one-size-forced-to-fit-all” online classes. Once COVID-19 is over, these parents will send the kids back to schools and learning centres, and might not be willing to pay for new online offerings.
“Our university has invested a lot in online technology. Contrary to what many people have in mind, quality online teaching requires a lot more investment than the traditional method,” associate professor Nguyen Ngoc Vu, vice-principal of Hoa Sen University, said in a statement.
Public schools are not allowed to charge for their online activities during this crisis, but for the private sector, e-learning fees are based on negotiations between the schools and parents.
“The school has not informed us of how they will adjust the tuition. But my husband and I are too busy and tired to think about it at the moment,” Thuy said.
DealStreetAsia has also learnt that a number of small ELT centers, which haven’t quickly developed online classes, plan to offer multiple offline classes after COVID-19 to make up for the prolonged closure.
“That would mean my kid will need to take after school classes four times a week, which we don’t want,” said one parent.
While we cannot ascertain how much private schools are charging for their online teaching amid the current situation, normal tuition at private K-12 schools in Vietnam ranges between 5-15 million dong ($220-660) per month. Fees at ELT chains are typically 8-15 million dong for courses that take three to four months.
It is too early to tell if online revenue could completely make up for lost traditional classroom revenue, said Sjoerd Zwinkels, Mekong Capital’s deal leader for the investment in YOLA.
“The longer the COVID-19 pandemic stretches, we believe the option of online learning technology becomes more attractive due to continued school shutdowns causing a potential increase in student learning loss.”
Going beyond the top cities
Uncertain times have always created opportunities too.
“It will separate the wheat from the chaff, and there might be a window for M&A,” said Toan. “Small companies will probably find themselves the need of being in a larger group to support them in terms of strategic management, operations and communication, among others.”
In terms of investment opportunities for private equity investors, he believed there was a chance to acquire small operators and asset-light businesses to consolidate the market. However, only risk-taking investors with ample war chests and solid post-merger integration experience are willing to take such chances.
When it comes to operation segments, investors parcel out attractive opportunities in K-12, ELT and pre-school. Centre-based assets, which were once perceived to be less valuable than K-12, will hold relatively high valuations over the next few years, a recent Mergermarket report said, citing EY-Parthenon Partner Amitabh Jhingan.
Toan emphasized that edtech models in Vietnam will only work if it is blended learning because education is also about being interactive and disciplined.
Kaizenvest’s Shastri added: “We have realized that there is necessity of introducing technology-enabled learning in the existing delivery models of education institutes.”
Opportunities should also be considered geographically, said Ngo.
“When you look at the 17 million Vietnamese K-12 students, only about 25 per cent live in Hanoi or Ho Chi Minh City. Those trying to send teachers from big cities (to provincial areas) have struggled to maintain the quality of instruction.”
That is also where technology comes in to bring an equal learning experience for everyone.
Vietnam’s private education sector is amongst the fastest growing in the world. English language learning, for instance, has been growing at more than 20 per cent over the last three years, according to Shastri. Yet, the growth excludes the potential in provinces.
More than 40 per cent of the Vietnamese population is below the age of 24, a “golden demographic” to yield opportunities for the education sector, according to a 2019 report by Savills, PLF Vietnam, GSA Studio and TMF.
The report said in Hanoi and Ho Chi Minh City alone, there were about 450 ELT centres. Meanwhile, another research by BMI indicated that Vietnam had more than 120 private K-12 schools by 2018.
Vietnam is amongst the top three markets in Southeast Asia in terms of education deals, according to the Mergermarket report.
The industry has attracted a spate of recent private equity deals such as TAEL Partners’s investment in EQuest, Kaizenvest’s first Vietnam transaction in YOLA, Hendale Capital leading $4 million round in Everest Education, and Navis Capital funding Thanh Thanh Cong Education.
Earlier large investments include TPG’s financing in Vietnam Australia School that paved an exit for country-focused fund Mekong Capital, and EQT’s investment in ILA.
Meanwhile, DealStreetAsia has recently covered transactions that might be underway, as CVC Capital and TA Associates reportedly had interest in ELT operator Apollo, and Apax English was said to be raising $40 million, while Baring Private Equity Asia might have sealed its investment in Vietnam USA Society English (VUS).