Deal focus: Point Avenue's O2O proposition

Vietnam education start-up Point Avenue is pursuing expansion across after-school tuition, bilingual K-12 schools, and online platforms. Gaw Capital will provide financial and strategic support

Best known as a property investor with $27 billion in assets under management, Hong Kong-headquartered Gaw Capital Partners has quietly deployed approximately $500 million in non-real estate deals across Asia in recent years. Education has emerged as a key focus area, with the firm closing a $500 million sector-specific fund last year.

“We believe that, in the long-term, education can be accretive to the real estate platform. Our managing principals have a keen interest in the sector,” explains Herbin Koh, a director at Gaw who is responsible for the new fund. “We’ve been investing over the past two years, often in education holding companies that allow us to be the real estate partner. We do see education real estate as an investable asset class.”

The fund has made a handful of investments to date, including a greenfield art education institution aimed at high school students in China, a chain of 40 kindergartens in Singapore, and Snapask, a Hong Kong-based online platform that allows students to post questions and connect to tutors who can help them.

The latest addition is Point Avenue, which focuses on K-12 schooling, after-school tuition, and online services. Gaw recently led a $12 million Series A round for the company.

Bilingual buildout

Launched in 2018, Point Avenue currently has five after-school tuition centers – two in Hanoi, two in Ho Chi Minh City, and one in Bangkok. It serves 2,500-3,000 students on an annual basis, through semester-long programs as well as two-to-three-week day and boarding camps.

“When you enter into new markets it’s important to establish a foothold and a brand before you go online. We came in initially and built out these physical centers and started attracting clients. The idea is that we can offer online services to these clients as well,” says Danny Hwang, who founded the company with his brother Samuel. They serve as co-CEOs.

But the big prize is bilingual K-12 schools. Point Avenue is opening its first establishment in Hanoi this year and hopes to add two or three more in 2022. Vietnam’s private K-12 space splits into two segments: international schools where local attendance is capped at 50% and the fees are up to $30,000 per year; and bilingual schools that are open to all and charge $5,000-10,000.

The latter, which usually cater to 800-1,500 students, appeal to Vietnam’s growing middle class.

“There are so many schools that just aren’t well managed. We often find that real estate developers have brought in local operators to run the schools, don’t like the outcome, so they are looking for international operators with strong local teams to take over. Our first wave of growth will be taking over management of those schools,” says Hwang. “The second wave will be organic growth, finding developers and building schools with them.”

In this sense, Point Avenue and Gaw make for logical partners – the operator that runs schools and the property developer that builds them. Indeed, Gaw is looking for opportunities in the K-12 bilingual space with a view to establishing joint ventures with operators. However, not all the firm’s investments follow the opco-propco model and it didn’t invest in Point Avenue purely for brick-and-mortar K-12 exposure.

“When we see a scalable opportunity in terms of the propco, we might make a strategic investment in the opco to the extent we think it will deliver financial returns as well,” says Koh. “Point Avenue has three pillars, and we went in because we believe in the brand, the positioning, and because there is edtech. Over time, I think they can become a leading asset-light operating company in edtech, with a separate team doing K-12 schools.”

Online expertise

Gaw was also won over by the Hwang brothers’ track record. They previously founded New Pathway Education & Technology Group, a China-focused online-to-offline (O2O) platform offering language training and test preparation services.

CVC Capital Partners acquired New Pathway in 2014 as the missing technology piece for Education International Corporation (EIC), an offline business that helped Chinese students enroll in universities overseas. It had paid $200 million for a majority stake in EIC and New Pathway represented a relatively small bolt-on acquisition. Two years later, the entire business was sold for nearly $700 million.

The Hwangs stayed in touch with some of the executives at CVC, among them Roy Kuan, who was then the firm’s Asia managing partner. Kuan, who has since stepped back from CVC, invested in Point Avenue’s Series A round via his family office, Generation Growth Investors.

New Pathway was a relatively early participant in China’s online education boom. The industry has taken off in recent years, with pure-play online after-school tuition players stealing a march on their offline peers as one-to-one platforms transformed into livestream, large-class format behemoths. COVID-19 has accelerated this transition.

While Vietnam is several years behind China in terms of product offering and competitive dynamics, change is already afoot.

“The K-12 after-school tutoring market up to 2020 was about building as many centers as fast as you could, leveraging as much capital as possible. Now a lot of these centers are closing because they haven’t been able to sustain themselves through COVID-19 and pivoting businesses of that scale is difficult,” says Hwang. “We were never going to open 100 offline centers. We always wanted to scale through technology.”

Apax English, Apollo Education & Training, and ILA Vietnam are the offline market leaders, while Topica is the preeminent online-only player. ILA is owned by EQT, Topica is backed by Northstar Group, and a PE bid for Apax fell through last year at the height of the pandemic.

The offline players - all of which are now pursuing O2O models - are expected to pose a threat to Point Avenue because an offline presence is seen as essential to building trust with parents and moving them online. Industry consolidation within this segment would give the story an added twist.

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