In recent years AcadeMedia has established itself as the leading and largest individual independent education provider in Northern Europe. The Group operates throughout the education chain, from preschools, compulsory schools and upper secondary schools to adult education in Sweden, and in preschools in Norway. As of 2016 AcadeMedia has also had limited preschool operations in Germany. All these operations take place within the framework of publicly financed education.
AcadeMedia believes there to be good opportunities for continued stable, long-term growth for independent providers due to a number of underlying drivers, the most evident of which are described below.
Positive demographic development driven by population growth and urbanization
The market for education in Sweden, Norway and Germany is expected to grow in line with positive demographic trends. In Sweden, the number of children and young people of school age (1 to 18 years) is expected to grow at an average rate of around 2.1 percent annually between 2015 and 2020, representing an increase of around 220,000 preschool children and students.
The demographic trends are also positive within adult education. Among other things, the number of people between the ages of 20 and 64 is forecast to increase by an average growth rate of 0.8 percent annually between 2015 and 2020 as a result of domestic population growth and continued strong immigration to Sweden.
In Norway, the base of preschool children is expected to increase as a result of positive demographic trends, with the number of children between the ages of one and five years forecast to grow at an average annual rate of 1.0 percent between 2015 and 2020, corresponding to around 11,900 children. It is worth noting that in both Sweden and Norway, AcadeMedia primarily operates in densely populated areas where the expected population growth in each age group is expected to be greater than in Sweden and Norway as a whole, as a consequence of greater urbanization.
In Germany the demographic trend in the number of children between the ages of one to six years is also expected to remain positive with an average annual growth rate of 0.6 percent between 2015 and in 2020.
In view of the expected positive development within all age categories, particularly in urban areas, AcadeMedia considers the conditions for long-term growth and profitability within the market for publicly financed education to be good.
Increasing investments in schools and education
Investments in schools and education have increased steadily in recent years. In Sweden, the national average school funding (“school voucher”) per student at preschool, compulsory and upper secondary school level increased by an average annual growth of approximately 3.0 percent between 2007 and 2014. The increase is largely due to increasing labor costs, driven by a general shortage of teachers and by various political initiatives to increase the status of teaching as a profession.
Within the area of adult education, the investments and allocations have increased over a lengthy period as a result of an increased political focus on the integration of immigrants and refugees and also on targeted efforts to increase employment and provide opportunities for adults to reskill. For example, investments in labor market education grew from SEK 2.1 billion in 2009 to SEK 3.9 billion in 2014.
In Norway, investments in preschool education also increased by an average annual growth of 9.0 percent from 2007 to 2014.
In Germany, the legislation on guaranteed preschool places for all children above the age of one has in recent years had a positive effect on investments, primarily in the independent, for-profit, preschool provider segment.
AcadeMedia assesses that investments in schools and education will continue to increase in line with a growing student and participant base, increasing labor costs, political initiatives and immigration in all regions where the Group has operations.
Increased penetration of independent providers
Although the share of independent providers differs within preschools, compulsory schools, upper secondary schools and adult education, there is a consistent trend for independent providers to comprise an increasingly large and important part of the education market. Two of the underlying drivers behind this are the citizens’ desire to have a free choice of schools and educational focus, and the competitiveness of the independent providers.
Between 2007 and 2015 the proportion of children in independent preschools in Sweden increased from approximately 17 percent to approximately 20 percent, and for Swedish compulsory schools from approximately 9 percent to approximately 14 percent. During the same period the number of students in independent upper secondary schools in Sweden increased from approximately 17 percent to approximately 26 percent. A similar analysis of preschools in Norway shows that the proportion of independent providers increased from 46 percent to 49 percent over the same period.
In Germany the market for independent preschool providers is still in its early stages, with around 51 000 children in independent for-profit preschools, but is showing significant growth in regions such as Bavaria and Baden-Württemberg.
AcadeMedia believes that this increase in independent providers’ market share, which has been ongoing for many years, creates a strong starting point and an opportunity for these to further consolidate their position in the market. This is subject to the independent providers maintaining their ability to meet citizens’ needs, and citizens continuing to trust independent providers.
Significant potential for consolidation in a highly fragmented market
Over the past ten years the market for independent publicly financed education in Sweden and Norway has seen consolidation at an increasing pace, partly driven by AcadeMedia through a number of further acquisitions. Despite this, the market remains highly fragmented and is characterized by just a few larger players offering a broad range of education, with a large number of smaller providers which to a large extent are active in just one segment.
AcadeMedia assesses that this market consolidation will continue as a result of stricter quality requirements from all stakeholders in the sector, something that is expected to favor larger and well-established providers with operations that are sustainable long-term, systems for transparent quality follow-up and reporting, and effective organizations that can exploit scalability and scale benefits.
AcadeMedia has also identified significant potential to consolidate the preschool market in Germany. The market for independent for-profit providers is currently in its infancy and consists of several small providers. These players constitute attractive add-on acquisitions for AcadeMedia in its efforts to be a leading independent preschool provider in the market.