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Investment in Education / 投资中国实例分析

Investment in China Case Study: Investment in Education

Author: 曹镇韬
2012-10-29
In 2009 an American company registered in the United States hoped to invest in China’s Education Industry and altogether went through the initial process of purchasing a privately operated college in Beijing. Finally, through consultations they agreed to purchase the college’s entire equity share for $60 million dollars, in addition, through a lawyer, they took the school’s existing equity, land, labor, bank loans etc., and took on the risk with the intention of later reassessing.
In October 2010 they completed the entire purchase, all the school’s operations were taken over by the purchaser. Though the acquisition came smoothly, there were major difficulties on the legal side in making arrangements for more secure transactions, which requires the law to arrange. When the main investor was setting up and operating the process, numerous irregular areas were the ones that foreign investors most needed to care for as well as improve.
China’s large population, by 2011, primary and secondary school students and adult students was between 250 to 270 million. Chinese parents have always prioritized education, and with the one-child policy, parents want to make sure their children receive a quality education, thus creating a huge demand for it. The cash flow in the education business is relatively good, first collect the money, then provide the services. Therefore, in the financial statement, the education industry generally has a lot of deferred income in the account. The education industry gains relatively large profits, coupled with low labor costs; therefore, investing in the education sector is a very good prospect.
In addition, education has several business segments, including: preschool, elementary and secondary, adult education, higher education, vocational training, language training, study abroad training, etc. Due to the different nature of all these segments, the investment procedure and risk-benefit of each is quite different. Therefore, investors must first identify specific industry segments. Language training industry is running in a full market way, one can either set up a company and hire some English teachers for language training, or buy an already established company such as New Oriental. Also, education’s academic qualifications receive relatively much government supervision; therefore it is not completely a free market industry. Below, we will analyze in detail the prospect of investing in higher education and the possibilities of managing it.
First of all, the government will control the scale of enrollment; the schools do not necessarily decide the yearly number of students. However, according to the acceptance rate of the national college entrance examination (In 2011, 9,330,000 participated in the college entrance examination and the admission rate was 72.3%, including the number of public schools enrollment which was 5,140,000 (Source: Ministry of Education website). This shows that the potential market for private higher academic education is very large. Secondly, there are some barriers to enter this market. Capital entry is not easy; especially in this last year the Ministry of Education has issued new regulations, which have made the requirements to enter this industry very high. For example for undergraduate, one must have 500 acres of one’s land, while a specialized subject school requires 150 acres. Therefore, it takes a lot of upfront investment to purchase the land and the infrastructure, however, only then will the Ministry of Education allow the school to issue its diplomas. It is generally believed that the upfront investment needs to be over one hundred million Chinese Yuan. Finally, there is the dealing with the teachers ranks, the Ministry of Education also has strict control over the teacher-student ratio, generally from 1:18 to 1:20, whoever invests in a school will also be in urgent need for competent school management personnel, therefore, the hard conditions of the industry in itself are relatively high. Of course, if one day these demanding admittance requirements are met, this person will be able to operate successfully because a certain stability, undergraduate academic structure of four years, specialization school system of three years, the Chinese people cherish a degree in general and once they start will in any case finish it.
The state encourages investment in education. From a legal perspective, private educational institutions can enjoy the same legal status of a public educational institution, besides the investor can obtain reasonable returns. In fact, the Government also hopes that foreign capital enters the industry. According to the Department of Commerce issued “Foreign Business Investment Guidance Catalogue”, investment in higher education institutions is classified under the category of encouraged, and proportionally, for this kind of industry there aren’t more restrictions for foreign ownership. From the point of view of the local government, each local government’s financial resources are limited; a private school can be self-financed to alleviate the financial burden. Of course, the local government will also examine the investors, to make sure that these are able to keep the school up and running. In the case of a strong institution taking over a school, the government is very willing to give extra help and be favorable. Looking at it from a future business development angle, a school with certain degree of ability will form a business circle and in its periphery engage in a variety of businesses, including real estate, retail, and entertainment.
From the laws and regulations side, there are a lot of risks, and setting up an operations team is also a big problem. If these issues cannot be effectively resolved, the initial investment is very likely to suffer a great loss. There are many cases of domestic private schools that fail. Therefore, experience in the operating in the education sector is extremely important, investors can also choose mergers and acquisitions options, or to take a state run school and change it into a private run school. Only in this way can it be a relatively stable investment.
Investment process:
For foreign investors, we believe that mergers and acquisitions is a relatively safe way, in general, foreign investors will not have many opportunities to participate in the public office reforms on private operations. Relatively speaking, it’s easier to acquire a private school or own its shares at the price that the holders would accept, so essentially it’s still acquiring the related company.
Roughly the acquisition process is:
Foreign investors by means of initial contact can determine all the targets they want to purchase, and in addition, they can issue a Merger and Acquisition Letter of Intent to the target school (company) to conduct due diligence. After the M & A letter of intent is issued, if the target school (company) agrees with the M & A to go a step further with consultations and negotiations, foreign investors can then conduct due diligence on the target schools (company). After the foreign investors dispatch the M & A letter of intent to the target company, both sides will enter the negotiation phase. Subsequently, they will sign a merger and acquisition contract. In the process of setting up the examination and approval procedures, thanks to the acquirer of the school, it will also involve the education authorities’ approval; this is the general process for foreign mergers and acquisitions. As the established is a Sino-foreign joint venture, then the jointly operating parties can both act on behalf of each other, it can also ask a specialized agency to act on their behalf to handle affairs. If it is a wholly foreign-owned company, foreign investors will be the applicants. Chinese law requires foreign investors in an M & A foreign business investment company to pay the fees within three months of being issued their license, in regards to purchasing the school there are no specific regulations but it is generally believed that it should also be within this period.
Major legal risks:
Generally speaking, many Chinese shareholders in the process of operating the school will have non-standard areas, as big as land ownership disputes, and as small as wages disputes. These are all areas which foreign investors should pay close attention to. For example, at the beginning of the article we mentioned the case of merger and acquisition, in the private vocational institutions there are equity and personnel issues, but through a lawyer’s reasonable arrangements, will take away the problem of the acquirer’s burden, and finally complete the acquisition. In fact, in the purchase process what the foreign investor must pay most attention to, is whether or not the school has completed the necessary formalities in the responsible departments, otherwise it could cause the acquirer to purchase an illegal mechanism to run a school.
Writer:Cao Zhentao, Hopkins Nanjing Center MA ’13
Translator:Judith Ordaz, Hopkins Nanjing Center MA ’13

投资中国实例分析:投资教育

作者:曹镇韬
2012-10-29
  2009年,注册地为美国的某公司希望投资中国的教育行业,并经过初步接触希望收购北京某民办职业学院。最后通过协商以6000万美元购买该校的全部股权,并且通过律师对学校现有的股权、土地、劳动、银行贷款等方面的风险进行再安排。2010年10月收购全部完成,学校由收购方全面接手运营。总得说来,该次收购较为顺利,其中主要困难为在法律方面安排较为稳妥的交易方式,这就需要依靠律所来安排交易。原投资人在设立以及运营过程当中,众多不规范的地方是外国投资者最需要关心并加以改善的。
中国人口众多,截止2011年,全国范围内的中小学生再加成人学生的总数是2.5到2.7亿以上。中国的家长素来重视教育,中国又是独生子女政策,父母往往想确保孩子的教育是优质的,教育需求巨大。教育产业的现金流比较好,先交钱、后提供服务。所以从财务账上来讲,教育产业一般都有一个很大的递延收入在账上。教育产业的利润也是比较高的,加之劳动成本又相对较低,所以投资教育行业的前景是很好的。
另外,教育行业细分市场非常多,包括:幼儿教育、中小学教育、成人教育、高等学历教育、职业培训、语言培训、留学培训等等。由于各细分市场本身性质的不同,投资的程序以及风险收益是有很大区别的。正因为如此,投资者需要首先确定具体的细分行业。语言培训行业基本上以完全市场化的方式运行,既可以设立一个公司并雇佣一些教师进行英语培训,也可以收购一个已经成规模的公司如新东方。而学历教育受政府监管较多,它并不完全是一个自由市场。下面我们来详细分析高等学历教育的投资前景及可操作性。
投资前景:
  首先,政府会控制招生规模,每年学生的数量并不是由学校决定的。但是依照目前高考全国录取率来说(2011年参加高考人数为933万,录取率为72.3%,其中公办学校招生数量为514万。来源:教育部网站)。由此可见,民办高等学历教育的潜在市场是很大的。其次,存在一定的进入壁垒。资本进入不容易,特别是最近一年教育部出台了一些新的规则,进入这个行业的变得要求非常高。例如办本科,必须要有500亩的自有土地,专科的要求是150亩。所以需要很大的前期投入来买购置土地以及进行基础建设,然而教育部才会允许发学历文凭。一般认为,需要上亿人民币的前期投资。最后还有教师队伍的培养,教育部对于师生比也有着严格的控制,一般在1:18到1:20,投资设立学校对于相关学校管理人才的需要也很迫切,所以说教育行业本身硬条件要求是比较高的。当然,如果一旦达到这种比较高的准入条件,它可以非常好地运作,因为具有一定的稳定性,本科学制四年、专科学制三年,中国人很珍惜一个学位,一般来讲无论如何都会把它读完。
国家对于教育投资是鼓励的。从法律上来讲,民办的教育机构可以享有与公办同样的法律地位,并且可以获取合理回报。实际上,政府也是希望外资进入该产业的。根据商务部颁发的《外商投资产业指导目录》,高等教育机构投资被列为鼓励类,对于该类行业并没有外资持股比例的限制。从地方政府的角度来说,每个地方政府的财政资源都是有限的,一个民办的学校,可以自负盈亏来减轻财政上的负担。当然,当地政府也会考察投资者,投资者要能够将学校良好地运作起来。如果有一些有实力的机构接手这个学校的话,政府是非常愿意的,甚至会给予额外的帮助和优惠。从未来商业拓展的角度看,一个稍具规模的学校自身会形成一个商业圈,可以在周边经营多种业务,包括房地产、零售、娱乐等。
法律法规方面存在很大的风险,而且组建运营的团队也是一个大问题。如果这些问题不能很好地解决,前期投入很可能会遭受很大损失。国内运作得不成功的民办学校的失败案例很多。所以,教育行业的运作的经验也是至关重要的,投资者也可以选择收购兼并的方式来做,或者是把一些公办的学校改制为民办。这样才能够相对稳定的进行投资。
投资流程:
  对于外国投资者投资来说我们认为收购兼并是比较稳妥的方式,一般来说外国投资者不会有很多机会来参与公办改民办。相对来说,以一个举办方能够接受的价格来收购民办学校或持有其股权比较容易,所以究其本质还是收购相应的公司。大致的收购流程就是:
外国投资者通过初步接触确定所要收购的对象并且发出并购意向书,对目标学校(公司)进行尽职调查。发出并购意向书后,如果目标学校(公司)同意就并购进行进一步的协商谈判,外国投资者就可以对目标学校(公司)进行尽职调查。 外国投资者在向目标公司发送并购意向书之后,并购双方就会进入谈判阶段。随后签订并购合同。在履行设立审批手续阶段,由于被收购方的为学校,所以还会涉及到教育主管机关的审批,这是一般外资并购流程中所没有的。如设立的是中外合资经营企业,则合营各方可以相互代理申请,也可以请专门机构代理申请事务。如果是外商独资公司,那么外国投资者是申请人。按照中国法律在外国投资者须在并购外商投资企业营业执照颁发之日起3个月内支付对价,对于收购学校并没有特别规定,一般认为也应该在这个期限内。
主要法律风险:
  一般来说中方的股东在运营学校的过程中多少都会有不规范的地方,大到土地权属纠纷,小到工资纠纷。这些都是要外国投资者注意的地方。比如说在文章开头提到的并购案中,该民办职业学院就存在着股权以及人事等方面的问题,但是经过律师的合理安排,将解决问题的负担交给被收购方,最后是可以完成收购的。其实在收购的过程外国投资者最需要注意的是学校在相关主管部门的手续是否齐全,否则就会导致收购方购买回来一个非法办学的机构。
作者:曹振韬 中美中心国际关系硕士项目2013

Investment in China Case Study: Investment in Education

Author: 曹镇韬
2012-10-29

In 2009 an American company registered in the United States hoped to invest in China’s Education Industry and altogether went through the initial process of purchasing a privately operated college in Beijing. Finally, through consultations they agreed to purchase the college’s entire equity share for $60 million dollars, in addition, through a lawyer, they took the school’s existing equity, land, labor, bank loans etc., and took on the risk with the intention of later reassessing.

In October 2010 they completed the entire purchase, all the school’s operations were taken over by the purchaser. Though the acquisition came smoothly, there were major difficulties on the legal side in making arrangements for more secure transactions, which requires the law to arrange. When the main investor was setting up and operating the process, numerous irregular areas were the ones that foreign investors most needed to care for as well as improve.

China’s large population, by 2011, primary and secondary school students and adult students was between 250 to 270 million. Chinese parents have always prioritized education, and with the one-child policy, parents want to make sure their children receive a quality education, thus creating a huge demand for it. The cash flow in the education business is relatively good, first collect the money, then provide the services. Therefore, in the financial statement, the education industry generally has a lot of deferred income in the account. The education industry gains relatively large profits, coupled with low labor costs; therefore, investing in the education sector is a very good prospect.

In addition, education has several business segments, including: preschool, elementary and secondary, adult education, higher education, vocational training, language training, study abroad training, etc. Due to the different nature of all these segments, the investment procedure and risk-benefit of each is quite different. Therefore, investors must first identify specific industry segments. Language training industry is running in a full market way, one can either set up a company and hire some English teachers for language training, or buy an already established company such as New Oriental. Also, education’s academic qualifications receive relatively much government supervision; therefore it is not completely a free market industry. Below, we will analyze in detail the prospect of investing in higher education and the possibilities of managing it.

First of all, the government will control the scale of enrollment; the schools do not necessarily decide the yearly number of students. However, according to the acceptance rate of the national college entrance examination (In 2011, 9,330,000 participated in the college entrance examination and the admission rate was 72.3%, including the number of public schools enrollment which was 5,140,000 (Source: Ministry of Education website). This shows that the potential market for private higher academic education is very large. Secondly, there are some barriers to enter this market. Capital entry is not easy; especially in this last year the Ministry of Education has issued new regulations, which have made the requirements to enter this industry very high. For example for undergraduate, one must have 500 acres of one’s land, while a specialized subject school requires 150 acres. Therefore, it takes a lot of upfront investment to purchase the land and the infrastructure, however, only then will the Ministry of Education allow the school to issue its diplomas. It is generally believed that the upfront investment needs to be over one hundred million Chinese Yuan. Finally, there is the dealing with the teachers ranks, the Ministry of Education also has strict control over the teacher-student ratio, generally from 1:18 to 1:20, whoever invests in a school will also be in urgent need for competent school management personnel, therefore, the hard conditions of the industry in itself are relatively high. Of course, if one day these demanding admittance requirements are met, this person will be able to operate successfully because a certain stability, undergraduate academic structure of four years, specialization school system of three years, the Chinese people cherish a degree in general and once they start will in any case finish it.

The state encourages investment in education. From a legal perspective, private educational institutions can enjoy the same legal status of a public educational institution, besides the investor can obtain reasonable returns. In fact, the Government also hopes that foreign capital enters the industry. According to the Department of Commerce issued “Foreign Business Investment Guidance Catalogue”, investment in higher education institutions is classified under the category of encouraged, and proportionally, for this kind of industry there aren’t more restrictions for foreign ownership. From the point of view of the local government, each local government’s financial resources are limited; a private school can be self-financed to alleviate the financial burden. Of course, the local government will also examine the investors, to make sure that these are able to keep the school up and running. In the case of a strong institution taking over a school, the government is very willing to give extra help and be favorable. Looking at it from a future business development angle, a school with certain degree of ability will form a business circle and in its periphery engage in a variety of businesses, including real estate, retail, and entertainment.

From the laws and regulations side, there are a lot of risks, and setting up an operations team is also a big problem. If these issues cannot be effectively resolved, the initial investment is very likely to suffer a great loss. There are many cases of domestic private schools that fail. Therefore, experience in the operating in the education sector is extremely important, investors can also choose mergers and acquisitions options, or to take a state run school and change it into a private run school. Only in this way can it be a relatively stable investment.

Investment process:

For foreign investors, we believe that mergers and acquisitions is a relatively safe way, in general, foreign investors will not have many opportunities to participate in the public office reforms on private operations. Relatively speaking, it’s easier to acquire a private school or own its shares at the price that the holders would accept, so essentially it’s still acquiring the related company.

Roughly the acquisition process is:

Foreign investors by means of initial contact can determine all the targets they want to purchase, and in addition, they can issue a Merger and Acquisition Letter of Intent to the target school (company) to conduct due diligence. After the M & A letter of intent is issued, if the target school (company) agrees with the M & A to go a step further with consultations and negotiations, foreign investors can then conduct due diligence on the target schools (company). After the foreign investors dispatch the M & A letter of intent to the target company, both sides will enter the negotiation phase. Subsequently, they will sign a merger and acquisition contract. In the process of setting up the examination and approval procedures, thanks to the acquirer of the school, it will also involve the education authorities’ approval; this is the general process for foreign mergers and acquisitions. As the established is a Sino-foreign joint venture, then the jointly operating parties can both act on behalf of each other, it can also ask a specialized agency to act on their behalf to handle affairs. If it is a wholly foreign-owned company, foreign investors will be the applicants. Chinese law requires foreign investors in an M & A foreign business investment company to pay the fees within three months of being issued their license, in regards to purchasing the school there are no specific regulations but it is generally believed that it should also be within this period.

Major legal risks:

Generally speaking, many Chinese shareholders in the process of operating the school will have non-standard areas, as big as land ownership disputes, and as small as wages disputes. These are all areas which foreign investors should pay close attention to. For example, at the beginning of the article we mentioned the case of merger and acquisition, in the private vocational institutions there are equity and personnel issues, but through a lawyer’s reasonable arrangements, will take away the problem of the acquirer’s burden, and finally complete the acquisition. In fact, in the purchase process what the foreign investor must pay most attention to, is whether or not the school has completed the necessary formalities in the responsible departments, otherwise it could cause the acquirer to purchase an illegal mechanism to run a school.

Writer:Cao Zhentao, Hopkins Nanjing Center MA ’13
Translator:Judith Ordaz, Hopkins Nanjing Center MA ’13

投资中国实例分析:投资教育

作者:曹镇韬
2012-10-29

2009年,注册地为美国的某公司希望投资中国的教育行业,并经过初步接触希望收购北京某民办职业学院。最后通过协商以6000万美元购买该校的全部股权,并且通过律师对学校现有的股权、土地、劳动、银行贷款等方面的风险进行再安排。2010年10月收购全部完成,学校由收购方全面接手运营。总得说来,该次收购较为顺利,其中主要困难为在法律方面安排较为稳妥的交易方式,这就需要依靠律所来安排交易。原投资人在设立以及运营过程当中,众多不规范的地方是外国投资者最需要关心并加以改善的。
中国人口众多,截止2011年,全国范围内的中小学生再加成人学生的总数是2.5到2.7亿以上。中国的家长素来重视教育,中国又是独生子女政策,父母往往想确保孩子的教育是优质的,教育需求巨大。教育产业的现金流比较好,先交钱、后提供服务。所以从财务账上来讲,教育产业一般都有一个很大的递延收入在账上。教育产业的利润也是比较高的,加之劳动成本又相对较低,所以投资教育行业的前景是很好的。
另外,教育行业细分市场非常多,包括:幼儿教育、中小学教育、成人教育、高等学历教育、职业培训、语言培训、留学培训等等。由于各细分市场本身性质的不同,投资的程序以及风险收益是有很大区别的。正因为如此,投资者需要首先确定具体的细分行业。语言培训行业基本上以完全市场化的方式运行,既可以设立一个公司并雇佣一些教师进行英语培训,也可以收购一个已经成规模的公司如新东方。而学历教育受政府监管较多,它并不完全是一个自由市场。下面我们来详细分析高等学历教育的投资前景及可操作性。
投资前景:
首先,政府会控制招生规模,每年学生的数量并不是由学校决定的。但是依照目前高考全国录取率来说(2011年参加高考人数为933万,录取率为72.3%,其中公办学校招生数量为514万。来源:教育部网站)。由此可见,民办高等学历教育的潜在市场是很大的。其次,存在一定的进入壁垒。资本进入不容易,特别是最近一年教育部出台了一些新的规则,进入这个行业的变得要求非常高。例如办本科,必须要有500亩的自有土地,专科的要求是150亩。所以需要很大的前期投入来买购置土地以及进行基础建设,然而教育部才会允许发学历文凭。一般认为,需要上亿人民币的前期投资。最后还有教师队伍的培养,教育部对于师生比也有着严格的控制,一般在1:18到1:20,投资设立学校对于相关学校管理人才的需要也很迫切,所以说教育行业本身硬条件要求是比较高的。当然,如果一旦达到这种比较高的准入条件,它可以非常好地运作,因为具有一定的稳定性,本科学制四年、专科学制三年,中国人很珍惜一个学位,一般来讲无论如何都会把它读完。
国家对于教育投资是鼓励的。从法律上来讲,民办的教育机构可以享有与公办同样的法律地位,并且可以获取合理回报。实际上,政府也是希望外资进入该产业的。根据商务部颁发的《外商投资产业指导目录》,高等教育机构投资被列为鼓励类,对于该类行业并没有外资持股比例的限制。从地方政府的角度来说,每个地方政府的财政资源都是有限的,一个民办的学校,可以自负盈亏来减轻财政上的负担。当然,当地政府也会考察投资者,投资者要能够将学校良好地运作起来。如果有一些有实力的机构接手这个学校的话,政府是非常愿意的,甚至会给予额外的帮助和优惠。从未来商业拓展的角度看,一个稍具规模的学校自身会形成一个商业圈,可以在周边经营多种业务,包括房地产、零售、娱乐等。
法律法规方面存在很大的风险,而且组建运营的团队也是一个大问题。如果这些问题不能很好地解决,前期投入很可能会遭受很大损失。国内运作得不成功的民办学校的失败案例很多。所以,教育行业的运作的经验也是至关重要的,投资者也可以选择收购兼并的方式来做,或者是把一些公办的学校改制为民办。这样才能够相对稳定的进行投资。
投资流程:
对于外国投资者投资来说我们认为收购兼并是比较稳妥的方式,一般来说外国投资者不会有很多机会来参与公办改民办。相对来说,以一个举办方能够接受的价格来收购民办学校或持有其股权比较容易,所以究其本质还是收购相应的公司。大致的收购流程就是:
外国投资者通过初步接触确定所要收购的对象并且发出并购意向书,对目标学校(公司)进行尽职调查。发出并购意向书后,如果目标学校(公司)同意就并购进行进一步的协商谈判,外国投资者就可以对目标学校(公司)进行尽职调查。 外国投资者在向目标公司发送并购意向书之后,并购双方就会进入谈判阶段。随后签订并购合同。在履行设立审批手续阶段,由于被收购方的为学校,所以还会涉及到教育主管机关的审批,这是一般外资并购流程中所没有的。如设立的是中外合资经营企业,则合营各方可以相互代理申请,也可以请专门机构代理申请事务。如果是外商独资公司,那么外国投资者是申请人。按照中国法律在外国投资者须在并购外商投资企业营业执照颁发之日起3个月内支付对价,对于收购学校并没有特别规定,一般认为也应该在这个期限内。
主要法律风险:
一般来说中方的股东在运营学校的过程中多少都会有不规范的地方,大到土地权属纠纷,小到工资纠纷。这些都是要外国投资者注意的地方。比如说在文章开头提到的并购案中,该民办职业学院就存在着股权以及人事等方面的问题,但是经过律师的合理安排,将解决问题的负担交给被收购方,最后是可以完成收购的。其实在收购的过程外国投资者最需要注意的是学校在相关主管部门的手续是否齐全,否则就会导致收购方购买回来一个非法办学的机构。

作者:曹振韬 中美中心国际关系硕士2013

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