Wall Street English Vietnam was once invested in with tens of millions of USD, yet a few days ago announced its sale to a partner for the price of 6 million USD. This figure is a small fraction of what the former investors had once invested. The Apax Holdings system, which owns dozens of English centers, announced a loss of nearly 170 billion VND in just the first quarter of last year. An EdTech combination once considered a bright spot lost nearly 200 billion VND over a year ago and is currently scaling back operations significantly, with its founder having resigned.
Quite a few tycoons invested in higher education only to ultimately grit their teeth and abandon it. Major tycoons in Vietnam jumping into education also only wanted to contribute to education, as no one was in it for the money. However, because most were rookies, very many private universities could not grow or fell into crisis. Hung Vuong University still cannot resolve its disputes. Tan Tao University has lacked the presence of a university board chairman for many years. Hoa Binh University has the advantage of a billionaire owner, yet still disappeared. Ha Hoa Tien University has been shrinking more and more over time. The owner of Huu Nghi University struggled endlessly and eventually had to transfer it to someone with more experience. Dong Do University was once a diploma-selling machine, leading to its owner now having to hide in the shadows. Saigon Technology University is now merely like a beautiful memory with quite a small number of students.
So is the private education market super-profitable as the press writes or as very many people think? I personally believe absolutely not. Private education has never been high-profit, let alone super-profitable. Meanwhile, doing education has never been for rookies.
There are a few large educational companies in Vietnam such as Nguyen Hoang, FPT, VinSchool, the BIS system, and the VAS school system, whose largest valuation to date is still under a few hundred million USD, so they cannot be called large. The largest deal right now is TPG’s acquisition of the VAS system for about 150 million USD and Baring’s acquisition of the VUS system for about 200–300 million USD (unverified precisely).
VinSchool up until now is still incurring losses, and without the deep pockets and real estate projects of Vingroup, it certainly could not be where it is today. FPT Education also relied on the FPT brand for many years to grow. But its value and contribution probably do not reach 1/4 of FPT’s revenue and valuation. Therefore, using FPT and VinSchool to speak about the affluence of private education investors is certainly inaccurate.
Nguyen Hoang Group has also only undergone a major transformation within the past 5 years by acquiring Hoa Sen, Hong Bang, and developing the iSchool system. 8 years ago when I met the founder, the company was still very small. Nguyen Hoang’s revenue probably has not exceeded the figure of 200 million USD in revenue/year. And they also still have to strive a lot; with such an asset-accumulation development model, the investment must certainly be enormously large.
Other players in the university scene like Duy Tan, Van Lang, Nguyen Tat Thanh, and Van Hien also only have revenues hovering around 50 million USD/year along with countless other expense items. K-12 schools are the same. At best, an educational company having about 2–3 schools is excellent. Just look at Doan Thi Diem, Nguyen Sieu, Ngoi Sao, Luong The Vinh, and the Viet Uc – VAS system, and it will be clear.
In Hanoi, there are two quite famous schools, Olympia and Newton. Olympia in recent years has been very successful and has a student body of about 1,000 students. Newton has developed rapidly with nearly 4,000 students. These two schools always have registered student numbers exceeding their current capacity. However, looking at history, it was by no means easy. For over 10 years Olympia struggled, and at times it was rumored to go bankrupt due to bank loans right during the economic crisis. As for Newton, at times it rented space at a sports complex, counting every single enrolling student.
After 10 years they reach today, and there is still only 1 Olympia and 1 Newton. If not out of a love for education, I think the owners there would probably have been even richer trading real estate instead.
The majority of those doing private education belong to the small enterprise group with a revenue scale hovering around 30–50 billion VND/year or below, or even much lower.
Comparing doing education to being super-profitable is no different from comparing the tea vendor lady next to the HCMC Municipal Theater, a shoeshiner, or an eatery, differing only in scale. The profit margin of the tea vendor lady, eatery, or shoeshiner must probably reach up to 50%. The average profit margin of education is from 8–18%, which is excellent (except for FPT, who occasionally boasts quietly in the education circle that it reaches up to 30%). But after deducting depreciation (which a lot of K-12 education owners tend to forget), only 7–15% remains, which is already very impressive.
In economic terms, English centers are popping up like mushrooms, so the current English teaching market is “perfectly competitive.” In a perfectly competitive market, profits will be very low and can equal zero. Therefore, capital accumulation is not much at all.
For K-12 schools, due to prestige built over more than a decade, and also having only a small quantity and good locations (acquired from a decade ago), they maintain their competitive edge and have a steady number of students. But they also only achieve a very small scale of just a few schools. For any school with many shareholders, annual profits are distributed completely clean. Where would the money come from to reinvest?
Universities are the same. Private universities have only exploded in the past 10 years. Accumulated profits are also not much because whatever dime they have, they borrowed more to buy land and build schools. Nonsensical state regulations requiring a university to have a minimum of 5 hectares of land and 1,000 billion VND in investment have made who knows how many genuine education investors regretfully withdraw.
So why do people keep thinking that private education is super-profitable? The single biggest difference in educational business is collecting money before providing the service. That is all. So if done cleverly, working capital can be utilized from tuition money paid upfront. But it is not much either; usually people only pay tuition 3 months to 6 months at most. (And that is not even mentioning loan interest to be paid). This is precisely the biggest point of confusion: collecting cash in advance does not mean high profit. Absolutely not.
Why is doing private education by no means easy and not for rookies?
Please read the upcoming articles:
- Part 2: Investing in Education Is Not for Rookies
- Final Part: The Weaknesses of Those Who Carry the Vocation of Education
Nguyen Quoc Toan
