(Bloomberg) -- At GEMS World Academy in Dubai, kindergarteners have access to iPads and students spend time at the school’s 70-seat planetarium. That all comes at a cost — fees that can rise to $33,000 by grade 12.
It’s the most expensive in the chain run by Dubai’s GEMS Education, which is among the world’s largest private school operators. Founded by Indian-born billionaire Sunny Varkey, GEMS caters to every price point, starting at as little as $3,900 a year. But a boom in the emirate’s financial sector has meant Dubai is home to a growing population of hedge fund traders and bankers willing to fork out premium prices.
Private schools are big business across the globe — and they tend to be pricey in most major hubs. In the UK, for instance, Nord Anglia Education Ltd. has been looking to sell a stake at a $15 billion valuation. But Dubai is more lucrative than its peers because local rules make the city’s public schools largely inaccessible to most expatriates.
That translates into big money in Dubai, where about 90% of the population of 3.6 million is from overseas, giving businesses unparalleled opportunity to profit from the education system. Foreigners from every part of the world — from the US and UK to Russia and India — have been pouring in since the pandemic, attracted by the city’s safety and low-tax regime. The government expects the population to surge to 5.8 million by 2040.
For GEMS, this means demand is running so high that it’s drawn up plans to add 30,000 new school places, Chief Executive Officer Dino Varkey, the founder’s son, said in an interview at the company’s headquarters.
This June, the Varkeys raised more than $3 billion from local banks to recapitalize the business while Brookfield Asset Management and co-investors committed $2 billion to GEMS. The family is now estimated to control a $3.7 billion fortune, according to the Bloomberg Billionaires Index.
“If we’d gone off to the UK or the US, I think we would have been in education, but would we have been able to develop the size and the scale that we have today? I don’t think so,” the younger Varkey said.
The education provider is now considering expanding into Saudi Arabia, which is attempting an economic transformation that will drive demand for private schools. But Dubai and the UAE will remain the main focus, the Varkeys insist.
That dependence on a city long known for dramatic boom and bust cycles leaves the business vulnerable to volatile expat numbers that can shrink in cyclical troughs. But for now the Varkeys are betting that Dubai’s parents will continue to pay top dollar.
GEMS is the largest school operator in Dubai, where it competes with international names like private-equity-backed Nord Anglia, as well as a string of local companies and branches of overseas institutions like Kent College.
But the absence of a public school system easily available to foreigners means most families in the United Arab Emirates, of which Dubai is a part, shell out substantial amounts of their salaries on schools. Beyond the highest-paid executives at the top echelons of finance, Dubai is home to thousands of people who are pressured by high fees — midlevel executives, teachers, small-business owners and nurses from around the world.
About 80% of families in the UAE are setting aside more than a third of their monthly income to pay for tuition, according to data assessed by investment banking advisory firm Alpen Capital, which cited a survey. Some of them have even drained savings and resorted to personal loans to finance their child’s education.
While data is scarce, a 2017 study from HSBC Holdings Plc found that foreigners in the UAE spend more on education than families anywhere in the world except Hong Kong. And despite shelling out thousands of dollars, there used to be lingering concerns that the relatively young schooling system could sometimes fall short of international standards, prompting some residents to pay higher fees than they want to in order to ensure a good education.
“The quality of education in Dubai is improving, but concerns remain due to the relative newness of many schools compared to more established systems in other expat hubs,” said Karen Cedillos, senior vice president for US-based Corporate Relocation Services LLC.
Dino Varkey says students from his schools regularly get into top global institutions like MIT, Oxford and Cambridge. He highlights some of the family’s more affordable offerings and says fees at the up-market alternatives are still 15% to 20% cheaper compared to other urban centers like New York, Hong Kong and Singapore.
But he also lays out an example at one of his schools where parents faced an 80% fee increase, but accepted it because nearby alternatives were even more expensive.
A government agency does inspect schools and enforces parameters for fee increases in the emirate. Dino Varkey argues for a de-regulation of school fees in the UAE, arguing it would make the sector even more attractive to foreign investors.
“It rationally does not make sense for any investor or provider to mis-price their product. You choose to mis-price it, parents will leave,” he said. “For our premium-price-point schools, there’s been a high degree of demand and that still seems to be continuing,” he said.
Sunny in a 2008 interview compared his schools with airlines which offer products for each income level. GEMS offers a variety of curricula — including American, British, Indian and International Baccalaureate.
But these days the expat influx has meant that Dubai schools are nearly at full capacity. Many parents are placed on waiting lists, forcing some to pay even more than budgeted.
“In our experience, the high cost of education in Dubai significantly influences expats’ salary expectations,” said Cedillos. “Clients tell us that the added financial burden often leads expats to attempt to negotiate higher salaries.”
The surge in new arrivals has put the GEMS empire on an ascent after setbacks during the pandemic. Sunny Varkey’s parents moved to the UAE in the 1950s before it was even an independent country. Young teachers, the Varkeys found in Dubai a growing need for English-language education. At first, the classes drew bank clerks and then royals, with the English lessons taking place at the Varkey home. Nine years after their arrival they opened their first school in Dubai.
Sunny Varkey went on to turn his parents’ single school with 300 students into a network of 44 educational centers in the UAE and two in Qatar serving more than 140,000 students. The company also operates around a dozen schools under the brand Bellevue Education in the UK.
Around 2017, the group considered listing the business in London, but a freeze on school fees scuppered those plans, Bloomberg reported at the time.
These days, GEMS makes over $1.2 billion in annual revenue and about $400 million in Ebitda, the younger Varkey says. The pickup in its business is a contrast with the pandemic, when schools across the globe, including the UAE, were temporarily shut. Sunny Varkey’s plans to raise fresh funds through a stake sale in the company had failed.
In August 2023, he met with a senior executive of Canada’s Brookfield in the Dorchester Hotel in London. He was looking for a new partner while Brookfield was scouting for deals in Dubai where it already owns assets worth billions of dollars. A deal ensued — essentially a bet on the durability of the private school business in Dubai.
“There’s only two or three places in the world that there’s been a significant reallocation of wealth,” Dino Varkey said. “And I think Dubai’s been the most significant beneficiary of that.”
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