Carlyle Goes Back To School, Pays 20M Tuition

Tuesday, September 4, 2007 10:43
Posted in category Invest in China

Today it was announced that Carlyle will take a minority stake in NeWorld Education, a network of 60 plus language schools in China.

More likely to make it through regulatory hurdles, the placement of 20 million USD into this privately held group is an interesting play given it already has a significant chunk of Wall Street Institute, one of China’s leaders in this space. See more on this interesting conflict here.

Interestingly enough, I have been working on a similar project (children’s education), and it is one of China’s best markets right now. English teaching is the single greatest field for foreigners in China now (due in part to the Olympics), and there are job postings everywhere… Nanjing, Wuhan, Chongqing, etc.

to the heart of this deal, Carlyle is investing in a significant player, but there are few things that I would be very interested in learning more about:

1) Will regulators look at this deal more closely due to their current position in WSI, and is it possible that these conflicting investments could lead to future troubles ahead

2) Is Carlyle headed for a Danone – Wahaha style implosion? What level of control does Carlyle have, and will NeWorld make life difficult if WSI starts to expand into areas that are areas NeWorld has an interest in

3) What is the exit? Merger or IPO? Is NeWorld being set up as a roll-up into WSI, or will it IPO out like New World Oriental?

If anyone out there is a former NeWorld teacher or student, let us know what you think of your old alma mater. Is it worth the 20 million?

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6 Responses to “Carlyle Goes Back To School, Pays 20M Tuition”

  1. Romain Guerel (French moving back to Shanghai) says:

    September 5th, 2007 at 12:03 am

    Hello Richard,

    Hope this time, they will not face any problem as you mentioned. I don’t like to promote myself on others blog but I will make an exception today. I recently wrote a post on my blog “China and I” http://chinaandi.typepad.com about the new anti-monopoly law http://chinaandi.typepad.com/chinaandi/2007/08/china-new-anti-.html where I take as example the setbacks of Carlyle Group in China. For a number of years, they have been very aggressive on the M&A market but failed to make any substantial deal for 2 reasons: 1/ The Chinese governement doesn’t want to loose their crown jewels to Foreign investors; 2/ The Carlyle Group is closely linked to the Bush family and the republican party.
    Currently, education hasn’t been under much scrutiny by the Chinese government but it may become one with the promotion inside those institutes of ideas counter-revolutionary and posing a threat to the party.

  2. Rich says:

    September 5th, 2007 at 12:23 am

    Hi Romain,

    you are shameless… However, as your post gives great insight into the issue, being shameless in this case is encouraged

    I agree with your assessment on Carlyle’s difficulties, however I would say that it is was more about how they were trying to structure the deals and that they had no expertise in the deals that prevented their approval. The was particularly try for XCMG.

    Nothing has been approved/ rejected yet, and it will be interesting to see what information will come out in the following weeks on the deal. Again, if there is anyone who used to teach at NeWorld, please let us hear what your thoughts are on the school.

  3. Romain Guerel (French moving back to Shanghai) says:

    September 5th, 2007 at 2:07 am

    Hello Richard (again!),

    Actually, One important for the Carlyle group went off early spring when they try acquire shares of the Chongqing Municipal Bank. I can also tell you (and you will not find in the newspapers or on internet) that they have tried to buy real estate companies or projects in Beijing but all deals went off after inquiries about the Foreign company. Now, Carlyle Group tries to play low profile (Horse of Troy?) but I am not sure if it will be -this time- successful.

  4. Rich says:

    September 5th, 2007 at 2:45 am

    Romain,

    The CQ bank deal (I covered that in another post) was made even more interesting in that their partner (DBS bank) got approval. However, unlike the other ones, I actually think it was pretty clear that they did not meet the basic standards for investing in the banking sector.

    If this deal gets the ax by regulators, I think Carlyle should be looking at new strategy by new team. I am not saying they have done anything wrong with this deal, but being shut down would be a clear sign that something needs to change.

    For the real estate, that is interesting. I have worked with a number of groups that have succeeded in funding developers. This was really popular 2-3 years ago following the loan regulation changes that forced developers to prove past experience, and limit the amount of funds based on future projections. Do you know if the deals failed at the regulatory level or at the deal table?

  5. Romain Guerel (French moving back to Shanghai) says:

    September 5th, 2007 at 3:58 am

    Richard

    Some at the regulatory table and others at the deal table. For the deal table problem, it failed with a state-owned real estate developer. I was surprised at the beginning for this failure because the State-owned was really desesperate to find cash but I think the real problem was the corporate attitude of Carlyle Group.

  6. Rich says:

    September 5th, 2007 at 7:59 am

    Very interesting. I find it almost as curious that a SOE real estate developer would have not been able to pull the right strings to seal the deal

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