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CHENNAI: Private equity investor Brookfield and Kalpathi Investments , which was into software education, have evinced interest in buying Andhra Pradesh & Telengana-headquartered school chain Sri Chaitanya Schools, as the promoters and PE investor New Silk Route press the exit button, in what could be the biggest transaction in the K-12 school segment with an expected valuation of over $1 billion.

PE investor, New Silk Route which made its investment of $25 million in 2011 in the school chain is pressing the exit button as the investment cycle of more than 8 years has ended. Typically, PE funds exit in seven years from the date of investment. Along with the PE investor who holds nearly 27% stake in the school, the promoters also are looking to exit, at a valuation expectation of nearly Rs 8,000 crore. It is learnt that EY has been appointed by the sellers to find suitors. The education chain is learnt to have an EBITDA of Rs 900 crore.

Kalpathi Investments, which ran a successful IT education business in the dot-com era as SSI Ltd before selling it is learnt to have made the first move, has since developed a cold feet. PE investor Brookfield has joined the race as it sees immense potential in the highly fragmented K-12 school education system.

Communications sent to Brookfield and Sushma Bopanna, daughter of Bopanna Satyanarayana Rao who founded Sri Chaitanya did not evoke a response. Kalpathi Suresh, director of Kalpathi Investments could not be reached for a comment.

School education in India is a tricky business as it is seen as a social cause rather than a business enterprise. “It needs an active participation by anyone who buys. It is not a passive business and since the scale is so large — more than 700 schools — the management challenges can be humongous,” sources said. Besides, the number of approvals and compliance related issues that a school needs from various government agencies and various state governments in this case, makes the transaction slightly tricky.

“It is a very tough business and investors must keep in mind about the inherent risks. For example, last May, a coaching institute caught fire in Surat killing more than 20 students. The owners and everyone were arrested,” a source said. Besides, school education in India is seen as a holy cow and the fee structures are administered and supervised by the local government.

“Fee committees of state government fix fees, thereby there is little maneuverability on that. A school therefore needs to earn in other avenues which are under GST making everything in that space complex,” the source added.

Transaction in the school education space got a leg up a few weeks ago when PE giant KKR lapped up 90% stake in EuroKids Group from Gaja Capita and EuroKids founders for nearly $200 million.

Sri Chaitanya was started in 1986 with a humble girls college in Vijayawada by doctor couple Bopanna Satyanarayana Rao and Jhansi Lakshmi Bai. Over the past decade the school chain has cranked up the expansion engine and is now present in several states, besides offering tutored programmes for professional courses and entrance exams.

