Where are the opportunities in the Saudi educational sector?

Where are the opportunities in the Saudi educational sector?

After highlighting the growth potential in the Kingdom’s education sector, this week I will shed some light on the obstacles faced by local players and how they could pass through this bottleneck to consolidation.
As many of you have already noticed, many expatriates’ families have left the Kingdom after being hit with fees as small private companies struggle with slower business activities. The number of foreign workers in the Kingdom declined by 6 percent to 10.2 million in the first three months of 2018 compared with a year ago.
As a result, international community schools have received requests from a large number of students for transfer certificates (or school leaving certificates) as their first step in leaving the Kingdom for good. The number of expatriate students to register this year declined by 30-35 percent compared with last year.
Schools which had closed their admissions lists for next year are now being forced to reopen them to fill the classrooms. In addition to not complying with the fees and Saudization process, this led to about 30 percent of private schools operating in the local market going out of business.
Reading the market dynamics, some local players are exploring consolidation through mergers and acquisitions (M&As). Many service providers operate a limited number of learning centers, often at a loss, and lack the scale or management expertise necessary to invest in curriculum development, the training of instructors and technology. Companies that think strategically and start acquiring smaller operators will definitely benefit from the market potential in the long run.
The majority of M&A transactions in the Saudi education sector have been private equity-driven deals. One of the highest returns on a private equity investment in the education sector in the MENA region was the sale of a majority stake in an education group in January 2013. In April 2016, the first education private equity investment fund was launched, aiming to generate returns by acquiring a controlling stake in an education company in Riyadh.
I believe that now is the right time for consolidation. The sooner the owners of these private schools understand and appreciate the consolidation benefits, the more likely they are to overcome these challenges. Also, they will be positioned for the sector’s promising future growth as Saudi Arabia is a relatively immature market in the private education sector.

Basil M.K. Al-Ghalayini is the Chairman and CEO of BMG Financial Group.

Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News' point-of-view