How many ‘bad’ schools make a good private equity investment?

**Rachel Varghese** (0:00)
K12 Techno Services is the parent behind the popular chain of Orchid International schools. And it has a pretty straightforward way of expanding itself. Take over more schools, get more students and grow the revenue. But how K12 goes about it is pretty theatrical. You see, K12 specifically wants struggling schools. Ones that are about 40-50 years old or have an ageing patient, or maybe it could be going through a succession crisis. It could also be the case that the business just didn't pan out, and now the school is being crushed under mounting debt. To put it simply, K12 is keen about the schools that are barely keeping their heads above water. And that's when K12 brings in the pitch. Fresh capital, upgraded labs, a basketball court, and most importantly, the recognizable name of Orchid International. And the thing is, nothing about that deal is even too much of a fuss. Ownership doesn't change hands. The buildings and payrolls stay with the original owners. All that changes is that K12 just takes over the management. It handles everything from curriculum and learning software to transport, books and uniforms.
This arrangement is locked in with a 50-year contract. And just like that, the school goes from being its own entity to a node in a network of over 100 schools under the Orchid brand. But this isn't just a story about a company with a savior complex. You see, K12's bet is that the Orchid's name, the buses and the shiny basketball courts will pull in more students.
Even though K12's FY25 revenue stored at 400 crore rupees, which is a slight dip from FY24's 430 crore rupees, K12 isn't worried because it is playing the long game. It's well aware that it is building in a business that is made for patients. A senior executive at K12 Techno Services told my colleague, reporter Adil Krishna, that it takes about 12 years for the school to break even before you start seeing profits. Even then, this model has managed to pull in those who are not quite as patient. Venture capital and private equity firms. For example, Peak 15 has been on board this train since 2010, which was when the firm itself began. Kedara Capital and Sophina Ventures joined in 2023 And in 2024, Kenro Capital invested another $40 million.
Then, on 31st March, just a couple months ago, the company closed a round of secondary sales with investors selling stakes to each other. The Ken came to learn that firms like Chris Capital, Warburg Pincus and Permira have all entered the cap table at K12 as well. Even Peak 15 sold part of its stake to another firm called Vitruvian Partners. And Unacademy, which also used to have a stake, has already cashed out its almost $20 million stake.
But keeping these big names on its cap table is exactly where K12 feels the pressure. You see, this is not a scale-fast-and-break-things kind of business. But as long as there is visible growth, investors are likely to stay. And for that, K12 needs to keep finding more struggling schools and fast.
Welcome to Daybreak, a business podcast from The Ken. I am your host, Rachel Varghese. And every day of the week, my co-host Snigdha Sharma and I will bring you one new story that is worth understanding and worth your time. Today is Monday, the 29th of June.
Bad schools come in all forms. Take one of K12's latest takeovers for example, the Delhi Public School in Sonipat. A senior K12 executive told Atul that the school was going through a succession crisis. Then there was another school in Mumbai that wasn't drawing as many students as its sister branch, even though both had opened together and debts had been piling up at both. Another in Bangalore was buried in debt after its owner sank money into a homestay business right before the COVID lockdown. All of them were perfect opportunities for K12 to step in. And once a school is on boarded, K12's goal is the same as any large school chain, maintain uniformity. Basically, make every campus feel interchangeable. But where K12 diverges from others, is in how it builds that uniformity. Take for instance, the KKR-backed Lighthouse Learning. That's the group that runs brands like Billabong High and EuroKids. It expands through a combination of franchising and acquiring. And here's how both of them work. In the franchise model, an interested party can set up a Billabong High school by paying a franchise fee to Lighthouse Learning, while continuing to own the school, operate it and collect fees from students. In the acquiring model, Lighthouse acquires entire networks of schools and runs them by itself, as it did with the Heritage Experiencers schools in 2023 K12, on the other hand, does neither of those things. One of the senior executives we mentioned earlier explained that the company had tried the franchise model before, but it believes that franchises dilute the brand. They optimize for profits and bring down the quality of services, which will eventually show and tarnish the name of the institution. So, instead, when K12 takes over the school's management, it earns a per student fee of Rs 30,000 to Rs 50,000 plus a 30% to 40% cut on uniform sales.