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

Episode Date: June 28, 2026

K12 Techno Services has a very specific type of school it likes to find. They're old, debt-ridden, maybe run by an ageing owner with no succession plan. It moves in, rebrands it Orchids, adds a basketball court, and locks the deal in for 50 years. Ownership never changes hands. The management, though, does.The model is built for patience. It takes 12 years for a school to turn a profit. But K12's cap table is full of private equity firms running on 10-year fund cycles, and they need a way out.So what happens when a business built for the long game has to keep moving fast?Tune in.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

K-12 Techno Services is the parent behind the popular chain of Orchid's 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 K-12 goes about it is pretty theatrical. You see, K-12 specifically wants struggling schools. Ones that are about 40 to 50 years old or have an aging patron, 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, K-12 is keen about the schools that are barely keeping their heads above water. And that's when K-12 brings in the pitch. Fresh capital, upgraded labs, a basketball court, and most importantly, the recognizable name of All Kids 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 K-12 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 orchids brand. But this isn't just a story about a company with a savior complex. You see, K-12's bet is that the orchids name, the buses and the shiny basketball courts will pull in more students.

Even though K-12's F-525 revenue stood at 400 crore rupees, which is a slight dip from F-I-24's 430-crow rupees, K-12 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 K-12 Techno Services told my colleague, reporter Adal Krishna, that it takes about 12 years for a 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 first firm itself began. Kidara Capital and Sophena Ventures joined in 2023 and in 2024, Kenrow 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-Pinkis and Permira have all entered the cap table at K-12 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 K-12 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, K-12 needs to keep finding more struggling schools and fast. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Richard Rewerkees, and every day of the week, my co-host, Nikashram and I will bring you one news 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 K-12's latest takeovers, for example, the Delhi Public School in Sonipath. A senior K-12 executive told Atul that the school was going through a succession crisis. Then there was another school in Mumbai that was enjoying 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 home stay business right before the COVID lockdown. All of them were perfect opportunities for K-12 to step in. And once a school is onboarded, K-12's goal is the same as any large school chain.

Maintain uniformity. Basically, make every campus feel interchangeable. But where K-12 diverges from others is in how it builds that uniformity. Take for instance the KKR-backed Lighthouse Learning. That's the group that runs plans like Billabong High and Euro Kids. 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 experiential schools in 2023. Katewell, 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 franchisees 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 K-12 takes over the school's management, it earns a per-student fee of $30,000 to $50,000 to $50,000 plus a 30 to 40% cut on uniform sales. It also pushes team sports which are easier to run across campuses and makes an additional revenue stream there, because students are charged up to 20,000 rupees per year to participate. Now, the payoff itself does take time. But once it crosses the 12-year threshold into profitability, a senior executive tells us that the company can expect to see anywhere between a 30 to 50% profit margin depending on how the school is run. But flipping schools is not K-12's only business. More on this in the next segment. K-12 has a B-2-B arm called Edewate.

It sells software products like LMS or learning management systems, school apps and curriculum tools. On paper, this should be a more profitable business model. In reality, though, it's been more of a struggle. Unlike the 50-year-old school contracts, B-2-B deals run only about 2 to 3 years with no guaranteed renewals. The senior executive explained that because the contract is in long term,

lots of schools take it for about a year or two and then in the third year, they switch and that year they don't pay. These services also can't be standardized since each school wants something different. For example, while one school may only want some standard software and a math module for grade one, another may want a financial literacy program. but only for classes 1 to 5, which means pre-bundled packages rarely sell, and the volume of sales is usually not a certainty. And what doesn't help is that schools are notoriously slow payers. Sonal Jain, a founding partner at Sun-Icon Ventures and early-stage VC fund, put it this way.

Schools are very bad payers in general, and companies end up falling into a working capital trap. Another K-12 senior executive explained that there are some companies in this space with 400 crore rupees in revenue, but out of that, 200 crore is stuck in receivables, which means that they might be making money on paper, but all that money is effectively stuck. The thing is, before buying K2L's LMS, schools weigh several options. Arjun Rao, the principal of Bombay International School, told Atul that some schools choose to outsource the entire function. Some, especially school groups, build it themselves. Others usually get stuck with multiple vendors, which makes day-to-day operations much harder. The competition in this

space is also no joke. Players like Lead School, Next Education, Extra Marks, Tata Class Edge and Pearson are already entrenched. In fact, lead school and next education alone serve nearly 30,000 schools, making them pretty hard to displace. And that's partly why B2B contributes so little to K-12's overall revenue. A senior executive confirmed that B2B accounts for only about 15% of the company's total revenue, and the majority still comes from schools. Now, with AI tools like Claude entering the picture, the landscape may become even more uncertain for K-12. schools are increasingly exploring the option of building their own LMS solutions at a fraction of the cost, which is making an already fragile business even shakier.

Stay tuned. So, with B2B underperforming, the focus now shifts back to onboarding more schools. The longer a school stays in the system, the more the investment compounds into a profit. But investors like Kedara Capital, Peak 15 and Sofina are not in this. came for 50 years. Their private equity firms running on 10-year fund life cycles and they need exits, which for K-12 results in a pressure for steady visible growth. Now, an IPO is on the charts, though it's still a few years off. An executive told us that it may happen in 2029 to 30 if some people want to exit and are able to sell. The company says that it depends on what the

situation is, though its current agreement says that it has to be before 2033. So, until then, K-12 has to keep showing momentum so that new investors step in as and when old ones exit, which is where funding rounds become important, like the third one that just ended. An executive explained to Atul that these rounds are a good way for K-12 to show other investors that they can exit and that these secondary transactions will continue to take place. But sustaining that cycle takes consistent growth. And in this business, growth means constantly finding and onboarding underperforming schools year after year.

But it's not like adding schools to the network is a walk in the park either. That takes time too, mostly because how rigid the school calendar is. Currently, an executive told us that K-12 is looking for schools that will open only in June 27 or 28. Now, K-12 has also had its share of issues, especially with regards to expansion. Last June, parents at an orchid school in Pune discover that it was operating without a CBC affiliation. That's the kind of problem that can tarnish the name of the whole chain. But the hunt must go on.

K-12's funding and its future both depend on it. And in a country with over 300,000 schools, finding the next one shouldn't be all that hard. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription offers daily long-form feature stories, newsletters and a whole bunch of premium podcasts.

To subscribe, head to the ken.com and click on the red subscribe button on the top of the Ken website. Today's episode was hosted and produced by my colleague Rachel Vargis and edited by Rajiv Sien.