A look at EFG Hermes’ planned education platform in Saudi Arabia: EFG Hermes is launching a USD 300 mn education fund in Saudi Arabia this year, replicating its successful model with the Egypt Education Platform (EEP) here in Egypt, EFG Hermes Co-CEO Karim Moussa told Enterprise Egypt. We recently sat down with Moussa to discuss EFG Hermes’ plans for the fund, and why the investment bank decided to move into the Saudi market with its second education fund.

Refresher: Launched in 2019, EEP Is an education management firm that counts EFG Hermesand the Sovereign Fund of Egypt among its anchor investors. EEP is now the largest education platform in Egypt, having raised USD 150 mn from a group of investors primarily in Saudi Arabia, the UAE, and Egypt. Today, EEP has deployed the entirety of the fund, and has aggregated 23 assets across schools, nurseries, and others. It owns a network of schools and nurseries as well as majority stakes in academic content provider Selah El Telmeez and Option Travel, which offers student transportation.

EEP has done well since its launch: In EGP terms, the investment cost was EGP 2.5 bn overthe past five years. This academic year, EEP expects to make EGP 3.5 bn of revenues and over EGP 1 bn of EBITDA, Moussa told us.

The new fund — named the Saudi Education Platform (SEP) — will be double the size of EEP, Moussa told us. EFG Hermes currently has a pipeline of investments that exceeds the size of that fund, Moussa said. “On the fund level, we’re happy to say that a big chunk of our existing Saudi and Emirati investors are very excited about our thesis and are subscribing,” according to Moussa.

The timeline: EFG Hermes expects a first close on the fund during the second half of the year,with the final close expected next year. The investment bank plans to begin deploying the fund “very soon,” probably in 2H 2024, Moussa said. “We’re already on due diligence with a few potential investments,” Moussa said, but declined to provide names of the target investments. SEP plans to kick off in Jeddah and Riyadh with a combination between new and existing facilities, Moussa told us.

EEP has a blueprint to follow from Egypt — with nuances to cater to the Saudi markets: At EEP, EFG Hermes created a central team run by Ahmed Wahby and his team, which is a unique model in Egypt. This provides all portfolio schools with central services, including procurement, HR, and IT. The schools are run with just the principals and very slim admin teams, which makes running them very efficient. “The EEP case study is quite relevant, and with the lessons learned in Egypt, we have several types of models — sometimes we own the land and real estate 100%, sometimes we enter into partnerships with the family that owns the schools, and other times we lease the land and real estate, or we only enter as a management team,” Moussa said.

How the student markets compare: The Egyptian student population is roughly 22 mn students, the lion’s share — around 90% — of which attend public schools, with the remainder attending private schools, according to Moussa. Saudi Arabia is the second-largest market in the region with a student population of 6.5 mn, 85% of which attend public schools and roughly 15% attend private schools. That translates to roughly 1 mn students across 8k private schools, Moussa explained. Students attending private schools are primarily expatriates, but the local population is also raising the demand and standards for education, he said.

In Saudi Arabia, there’s a gap in the middle segment of the educational market: The market currently has very expensive international schools, which diplomats’ children typically attend, and the mass market national schools, but in the middle there’s an opportunity to provide high quality education at an attractive price point. “We feel there is a nice entry point in the Saudi market, in the mid-market where we’re talking about tuition fees in the neighborhood of SAR 40k-60k per year and offer high standard curricula such as IB, with a high quality school,” Moussa said. EFG Hermes also sees an opportunity to replicate its combination between building new schools, investing in schools, and helping existing schools with the firm’s central management philosophy.

“A lot of the schools that we see have been built as family businesses, and we feel that there’s a chance for us to enter the market there and provide our management expertise,” Moussa said. There’s an operational element — EFG Hermes “isn’t just some private equity player entering into the Saudi market. We have very strong operations and a track record that we’d like to replicate,” he told us.

And the market for service providers also has similarities: “What’s very interesting is that the top four education companies in Saudi Arabia — most of which are listed — control only 10% of the market. The market is highly fragmented, which is similar to what we’ve seen in Egypt, so there’s room for a new entry into the market,” Moussa said. Providing high-quality, high-standard education at affordable prices is an appealing proposition, he said.

There are also lots of similarities between the Egyptian and Saudi curricula, which iswhere a platform like Selah El Telmeez — which has also begun going digital — will come into play to help SEP create a strong curriculum for its assets in Saudi Arabia, Moussa said.

The Saudi government has been very welcoming of EFG Hermes’ entry into the market: “We’re spending a lot of time on creating deep Saudi content to run with Saudi management,” Moussa said, stressing the importance of creating a bespoke formula that caters to the local market.

Your top education stories for the week:

  • Akhdar to develop educational content for Nahdet Misr: Homegrown book summary and education platform Akhdar will develop digital educational content for Nahdet Misr ’s platforms under a cooperation agreement inked between the two.
  • House approves USD 12 mn USAID education grant: MPs last week approved a USD 12 mn USAID grant to support basic English-language education, including reading, writing and learning, among primary and secondary school students.
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