Roundtable event on:Trends and Investment Opportunities in Vocational Training

I. Introduction | P.5 II. TVET Investment Environment and Opportunities | P. 6 III. Selling the Real Estate of Education Companies to REITs | P.11

IV. Conclusion | P.12

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Participants at the 2014 MENA Private Equity Association roundtable on trends and

investment opportunities in vocational training agreed that demand for skilled labor was strong across the region. Education companies can capitalize on that by targeting industry specific vocational training opportunities. Local regulatory resistance to for-profit companies has softened somewhat. Participants also agreed that restrictive regulation and the relative immaturity of the region’s capital markets still require dealmakers to be innovative. Education-related real estate is a potential opportunity for sponsors and investors. The MENA market for publicly traded REITs, however, is still under-developed.

Executive Summary

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A list of participants is available in Appendix 1 at the back of this paper.

The MENA Private Equity Association would like to thank CedarBridge Capital for sponsoring the event and

The Boston Consulting Group,

specifically Dr. Leila Hoteit, Mr. Mohamed El Abbouri and Mr. Sherif Abdulla for their efforts in producing this

report.

We also would like to thank the participants in the roundtable for their insights.

Profiles 3

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About The MENA Private Equity Association About CedarBridge

CedarBridge partners with solid and promising MENA companies and management teams. We then support them to achieve exceptional growth.

We have a clearly defined style:

• Innovative and independent thinkersFollow a strict discipline and implement the best global practices, yet always challenging the traditional private equity model and adapted it to the realities of MENA region and the demands of investors.

• Proprietary deal flow Deep networks in focus sectors across the MENA region allows access to proprietary deals.

• Operationally savvy and resourceful The team and advisory board have deep sector knowledge and practical operational expertise.

"We enjoy partnering and working with newly-energized management teams and partners with a focus on creating outstanding value."

- Magellan Makhlouf, CedarBridge Managing Director

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- Imad Ghandour, CedarBridge Managing Director

The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 81 offices in 45 countries.

BCG serves the Middle East from Abu Dhabi, Dubai and Riyadh. Our offices there, in conjunction with the BCG office in Casablanca, play a key role in serving clients in the rapidly developing Gulf region as well as Middle East North Africa (MENA). To date BCG has successfully conducted assignments in the Middle East serving clients across a wide range of sectors, including government, financial services, energy, industrial goods, telecommunications, real estate, healthcare and private equity.

For more information, please visit: www.bcg.com

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IntroductionThroughout the Middle East and North Africa, vocational education has not kept pace with economic development. As a result, employers are struggling to find skilled workers across a large number of relevant industries. That presents a large potential opportunity for investment in for-profit technical education and vocational training.

There have long been challenges to all kinds of educational investment in the region. Creative dealmakers, however, have been able to work around these obstacles successfully and have identified lucrative niches and developed innovative ways to structure deals and while some MENA regulators have shown new interest in for-profit education projects. , there have been a number of successful education-related IPOs on the global scene.

Recently, a handpicked group of private equity professionals, investors, operators across the education spectrum, advisors, consultants and law firms, the majority of which are members of the MENA Private Equity Association have gathered to discuss the latest trends and investment opportunities in vocational training for private equity fund managers and the challenges they face in the region. The discussion was chaired by Mr. Imad Ghandour of CedarBridge Partners, and co-chaired by Mr. Wissam Darwiche of Waha Capital. The following is a summary of the discussion on three main topics:

Prospects for technical and vocational educational (TVET) investing in the region

Prospects for selling the real estateof education companies to REITs

The environment for IPOS of all kinds of educational companies

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TVET Investment Environment and Opportunities Environment

The Roundtable participants agreed that the growth potential for TVET enrollment across the MENA region is large. In Europe, where TVET education has long been a priority, enrollment levels are high, and can reach up to 50 percent of eligible students in some countries (see figure

1). In the MENA region, where governments have generally neglected vocational training, enrollment rates are much lower, ranging from 1 to 7 percent of students. In the countries of the Gulf Cooperation Council, , the market for vocational training is still nascent and hasn’t gained much popularity especially since the middle to lower strata of the society, which is mainly the target market for vocational training, is a transient population.

Figure 1- TVET Enrollment level bar chart

1. Data from Italy belongs to Year 2011, growth calculated within 2006-2011, no data available in 2012.2. Egypt growth calculated between years 2009 and 2012; no data available from 2005 to 2008.

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• While the total MENA TVET market is large, it is very fragmented. Education investments larger than $50 million in a single country are rare. One reason is that, unlike K-12 schools, vocational schools are highly specialized, con-centrating on specific trades, like healthcare, fashion, or information technology, making them difficult to scale.

• Governments keep tight control on education. They are usually the only customers of for-profit education ventures and can also become competitors.

• Financial regulation, particularly of foreign ownership, can be quite restrictive and varies dramatically across the region, making it diffi-cult to scale investments.

• Although attitudes have softened, the public and regulators generally disapprove of making a business of education to avoid public back-lashes.

• The region’s capital markets have been relatively illiquid to support large initial public offerings, making it hard for early investors to exit.

• Meanwhile, GCC operators and investors are looking at education investment opportunities in other parts of the world. For example, South-east Asia is a huge and rapidly growing market.

• The overall picture for educational investment, however, is becoming more positive. There has been a number of successful recent education

IPOs on international exchanges. (Both subjects are discussed in more detail in Sections II and III below).

• MENA regulators and governments have indicated a greater willingness to work with for-profit educa-tion operators. For example, under its “Colleges of Excellence” program, the Kingdom of Saudi Arabia’s Technical and Vocational Training Corporation is planning to open 100 colleges over the next few years in public-private partnerships with foreign for-profit education companies.

Obstacles to large-scale foreign investment in the region, however, are long standing and significant.

Case Example: Saudi Arabia Colleges of Excellence

KSA government, in particular TVTC, launched in 2012 a “Colleges of Excellence” program in which government partners with international service providers of TVET through a PPP model. The TVET provider develops the curriculum of their offering, operates the college and maintain facilities (making profit out of it); KSA government builds the infrastructure, coordinates funding and oversights the program execution.

This year a consortia of 4 British TVET providers won 4 new contracts worth ~ USD$1.3B

• The Oxford Partnership, a consortium comprising Activate Learning. GEMS Education Solutions and Moulton College

• Lincolin College

• Hertvec, a consortium led by Hertford Regional College and also including North Hertfordshire College and the University of Hertfordshire

• FESA, a consortium of leading UK colleges and training providers

In addition, TVTC is planning to add 100 colleges over the next few years.

Continued on Page 8

Access to the capital markets is very important to for-profit education companies in the MENA region and their sponsors. Given the large investments required in fixed assets, especially in real estate, educational companies need to be able to go public to expand and foster sustainable growth. MENA capital markets have not traditionally been welcoming to education IPOs. There are only a relative handful of listed educational companies in the region. (See figure 2 on the next page)

TVET Investment Environment and Opportunities

Continued from Page 7

Opportunities

Roundtable participants agreed that demand for skilled labor is very strong throughout the region, particularly in the countries of the Gulf Cooperation Council. Key sectors in which skilled labor is in short supply include in-formation technology, aviation, health-care, financial services, market ing, pharmacology.

The most promising opportunities are in niche areas with an industry-specific focus that promises high employabil-ity. Customers (i.e. students) are willing to pay relatively high tuition fees in ex-change for a qualification that is likely to secure him or her a job quickly. Accord-ing to Imad Ghandour of CedarBridge Partners, “In Egypt there is a specialized underwater welding school. It’s a one-year program that costs 12,000 Egyptian pounds; For an average villager around that area, that’s a lot of money, yet there is

a queue to get in because such an invest-ment in vocational training is likely to pay off and employment is almost guar-anteed upon graduation.”

One of the opportunities that cuts across industries is teaching the interpersonal “soft skills” required in modern work-places. Employers face difficulty finding candidates with good communication and presentation skills, foreign languages and other important yet basic set of soft skills.

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8 Figure 2 - Public listed Education companies in the GCC / MENA region

Source: Zawya – Thomson Reuters

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Many participants had commented on favorable routes to IPO outside the MENA region for many reasons but mainly because of the uneasiness that some regional regulators display towards education as a for-profit business hence discouraging listing of education establishments to avoid negative public reaction.

Other reasons would be the dispartiy in disclosure requirements across regional markets and their relative lack of liquidity vis-a-vis globla exchanges like London, New York, Singapre or Hong Kong..

Some private equity investors, however, think regulators are warming up to the concept. Jens Yahya Zimmermann of New Silk Route Growth Capital described discussing one possible listing: “ The regional regulators, for example in Dubai, Abu Dhabi and Saudi Arabia, are keen to improve the IPO landscape and investor perceptions. Recent IPO activity underscores some success in this area, preceded by targeted marketing campaigns by stock exchanges and some regulatory changes towards more flexibility.”

Some companies have raised capital through the MENA debt markets. In January 2014, UAE - based GEMS listed a $200 million sukuk on the Dubai Financial Market.

Case Study: Nord Anglia Education

Company Profile: School K-12 Operator

Market: U.S. (NYSE)

IPO: $304 million in April 2014

Nord Anglia Education, one of the world leaders operating premium international schools K-12, runs 31 schools in Southeast Asia, China, Europe, North America and the Middle East providing education to over 19,700 students.

During its IPO in April 2014, Norc Anglia raised about $304 million after its initial public offering was priced at $16 per share, selling a total of 19 million shares.

Further expansion plans include opening of 2 new schools in Hong Kong and Dubai

Case Study: 2U

Company Profile:Education Technology

Market: U.S. (NASDAQ)

IPO: $120 million in March 2014

2U, an online education company, is a provider of cloud-based software-as-a-service solutions that enable colleges and universities to deliver their high quality education to students anywhere.

During the IPO in march 2014, 2U raised about $120 million after its initial public offering was priced at $13 per share, selling a total of 9.2 million shares.

2U accredited graduates receive live online classes and real-world learning experiences, designed and delivered by university faculty. In 2014, 2U launched its first undergraduate and doctoral programs.

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Real estate represents a large cost in MENA educational projects and dealmakers have used a variety of techniques for financing it. Real estate investment trusts offer a large but so far undeveloped opportunity in the region to finance the real estate assets.

Packaging real estate into a separate investment frees investors in the operating company from having to finance the buildings and from real estate risk. Additionally, the return on investment of education companies (without the real estate) tends to be over 20 percent, compared to the yield on MENA real estate, which is in the 6 to 10 percent range. Meanwhile, investors in the real estate industry get a large asset with predictable cash flow and a single, long-term tenant. In late 2013, for instance, GEMS financed expansion by selling the facilities and related assets of GEMS World Academy Dubai, an international K-12 school, to Emirates REIT, the first United Arab Emirates regulated real estate investment trust, for an undisclosed amount in a leaseback deal. GEMS continues to operate the property.

A real estate component can give education deals scale and also an extra measure of security for investors. Jens Yahya Zimmerman of New

Selling the Real Estate of Education Companies to REITs

Silk Route Growth Capital said, “Real estate is an important component in many education transactions, often representing the bulk of the investment. Operators typically prefer to lease real estate, creating a desire for a different owner of education real estate. Some groups have started to invest in such real estate assets in the GCC, making the market more efficient and bringing it in line with other regions.”

There are some risks to the operating company, however, in offloading real estate. MENA financial regulators tend to be more comfortable with education projects with significant hard assets.

REITs have been slow to take off in the MENA region. One difficulty is finding enough properties to package into liquid investments. Another large obstacle is the lack of consistent regulation of REITs across the region. Some dealmakers have packaged real estate assets and sold them to institutional investors in private transactions. Roundtable participants, however, agreed that the great potential of publically traded REITs would go untapped until consistent and transparent regulation was adopted.

‘Real estate is an important component in many education transactions, often representing the bulk of the investment...’

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IVConclusion

While the obstacles are real, the overall picture for TVET investment in the Middle East and North Africa

is getting brighter. Demand for skilled labor is intense and is driving a shift in the attitudes of regulators across the region towards foreign TVET investment. Successful IPOs on international markets have raised investors’ hopes that MENA regulators will become more welcoming to education listings on their exchanges.

Capitalizing on MENA education opportunities, however, requires private equity sponsors and other dealmakers to be flexible. Navigating the region’s regulations and restrictions means creating innovative deal structures and that requires strong knowledge of local markets and patience. The potential rewards as indicated by the level of demand and the size of the market, however, are attractive.

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Name Company

Andre Wagner Swicorp

Ibrahim Al Safadi Luminous Group

Imad Ghandour CedarBridge Partners

Imad Boukhari Ernst & Young

James Ruiz Ardent Advisory

Jean-Noel Odier Gulf Islamic Investments

Jens Yahya Zimmermann New Silk Route

Magellan Maklouf CedarBridge Partners

Nabil Issa King & Spalding

Rami Bazzi Zubair Corporation

Sean Price TQ Education & Training Ltd

Dr. Tolga Yazici Plato Education Group

Valerie Mantot Sanne Group

Vaibhav Saini Ernst & Young

Wissam Darwiche Waha Capital

14 APPENDIX 1: LIST OF ROUNDTABLE PARTICIPANTS

MENA PEA is the sole representative body to promote the MENA private equity and venture capital industry across the globe, to key stakeholders.Its primary goal is to facilitate the knowledge sharing in order to encourage overall economic growth and build trust with investors, regulators and the public regionally and internationally.