Partnership the way to better schooling for all

Legend has it that halfway through a make-or-break presentation by Chris van der Merwe, founder of a fledgling education business with just four schools in 2009, PSG chairman Jannie Mouton pushed back his chair and made to leave the meeting.

Van der Merwe thought he'd lost his most likely backer. After all, the business had then been in existence for more than 10 years, and had only a handful of schools to prove its model. The former teacher, who had helped build the first school in 1999, felt Curro was going to be a hard sell.

Then his heart beat fast as Mouton reportedly said: "I don't know about the rest of you, but I am investing. It's up to you what PSG does."

Curro, which listed on the JSE in the throes of the worst global economic crisis since the Great Depression, hasn't looked back. There are now 109 schools on 80 campuses and a teacher training college. It educates 41,000 youngsters a year and the number is growing.

Despite critics saying it can't keep growing, it's sticking to its promise of delivering 200 schools by 2020. Mouton remains ambitious for the business he has backed, and at a PSG conference three months ago said it should target 500 schools by 2030.

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This is not a goal to which Van der Merwe will commit publicly, but there's a way it could happen.

At some point minority shareholders will want profits to accrue to them rather than constantly having to follow their rights to avoid dilution as the capital-hungry business regularly issues new equity to grow and develop.

The group has been building up stocks of land to ensure it can meet its 2020 goal, and now owns 161 erven. Last year, its bid to buy the listed owner of Crawford College was rebuffed amid a rebellion by parents of pupils at Advtech schools with concern about racism at its Roodeplaat school and poor handling of the confidence crisis that followed.

A year later, Van der Merwe says, the blocking of the deal was a blessing in disguise. With so much demand for private education, and even cash-strapped parents looking for other household savings rather than compromise on the quality of education, there is plenty of opportunity to serve a growing middle class.

And while Curro will be opportunistic when private schools come on the market, it doesn't need to pay the premium required to buy existing assets. There is also an interesting opportunity in working more closely with the state.

About 5% of South African children are educated privately. Education and demand for new schools put a burden on the state, which has land that should be developed to meet the growing demand for education.

Van der Merwe wants to buy, build and operate schools on behalf of the government.

A 1500-pupil school can cost R120-million to build and R30-million a year to run. It's high time there was co-operation between public and private sectors for efficient and effective delivery of better education.

South Africa ranks at or close to the bottom of annual World Economic Forum surveys. Unusual solutions are needed to address the crisis in learning effectively.

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PSG bought its initial 50% stake in Curro in 2009 for just R50-million, and paid as much a year later for a further 26% via Paladin Capital. The firm has raised about R3-billion through rights issues in expanding, and today has a market value of R16.5-billion and trades at a multiple of 150 times last year's profit.

It's feasible that with a bigger free float the share would trade at lower levels - but that's what the market always argued about Capitec, which grew nicely into its rating over time.

It's time the Public Investment Corporation raised its 4.6% stake in Curro. Lobby group Equal Education is a critic of state investment in private education, but it needs to weather the storm to improve education or leave South Africa at the bottom of global rankings. I suspect they are talking.

The state could raise capital by selling land to Curro, and through a raised equity investment plough dividends into public education. Properly managed, a win-win.

Whitfield is an award-winning financial journalist, broadcaster and public speaker