Anderson Quigley

Another kind of marketplace

Another kind of marketplace

Posted on 22 September 2020

The recent report that BPP University is being offered for sale, yet again, is just one of a series of transactions which have been announced in the private university sector and in the related service industry during 2020.  Some of these involve international educational groups entering the UK market or consolidating existing interests.  In March Richmond American International University, which faced possible closure, received substantial investment by Hong-Kong based China Education Group which already owns a number of universities and colleges in China and Australia.   More recently Regent University has been acquired by the French-based Galileo Global Education which has 42 institutions in 13 countries as far afield as the US, Mexico, Singapore and India as well as substantial interests in Europe and the UK.

Private equity groups are particularly active in the sector; Learn Direct, formerly the University for Industry, has been bought by RJD Partners, while Apiary Capital, which specialises in healthcare and education, has taken a majority share in the multi-campus Access Creative College and installed as chairman Jo Johnson, the former Universities minister and chair of the TES group.  Meanwhile, buyers are sought for several service companies in the sector, including iSAMS, the management information system (MIS) provider which is used by a third of British private schools, and Capita’s ESS service and there are reported to be more in the pipeline, including UCFB the Manchester-based football college.

Transactions of this kind are not new, of course, and a number of educational conglomerates have been created over the past two decades, including Laureate International Universities which, at its peak and before its failed stock-market launch, controlled more than 200 campuses in 28 countries, and Global University Systems, which owns 23 educational institutions and related businesses, including Arden University and the University of Law.  Despite difficult economic circumstances there seems to be increased activity at present.

Paradoxically, the challenges of Covid-19 seem to have created new opportunities.  On the one hand, according to the magazine Education Investor, buyout houses with hundreds of millions of pounds invested in the market are bracing themselves for widespread losses.  On the other, this has not deterred new entrants who regard education as a sound long-term financial investment and see an opportunity at present to acquire assets at a discount.  Much of the new interest is coming from the Far East and India, as well as the Middle East, where there seems to be more liquidity; typically such investors will look to provide between £10 and £75 million (although, a far cry from the $2 billion which Laureate invested in just 8 years.).

Taking over or investing in an existing institution is relatively straightforward compared with establishing a new provision altogether.  The Higher Education Act of 2017 was introduced to make market entry easier for new providers yet the registration process by the Office for Student (OfS) presents a number of barriers, especially to those from abroad.  The process is lengthy and requires potential new entrants to commit considerable investment in premises and in developing their courses before any right to operate is given.  This is perfectly understandable, given the need to protect students and maintain quality and given the fact that successful registration gives access to Student Loan Company finance as well as Tier 4 Sponsorship status from the Home Office.  Yet, there is a case for a simpler and faster process where an investor has an established record of delivering higher education elsewhere whose quality is recognised as equivalent by the OfS and QAA and can give convincing evidence of financial sustainability and serious purpose.

In the absence of such a process it is likely that the current trend towards take-over or direct investment will remain the main focus of interest by investors.  But who knows whether this interest may extend into the mainstream public sector where there are also considerable challenges?  According to a recent briefing paper by the Institute of Fiscal Studies, the sector as a whole faces financial loss of as much as £11 billion and as many as 13 universities may need urgent government bail-out or debt-restructuring.  Of course, acquiring a traditional university is clearly different from buying a privately-owned institution because of the nature of ownership and the model of governance and stakeholder involvement.  However, some institutions may welcome new investment and partnership, especially if it opens the door to new opportunities abroad.  This, in turn, requires a reconsideration of how investment in higher education is encouraged and fulfilled and how the higher education sector, public or private, can be sustained and enhanced.

In the final analysis, it is vital to ensure the well-being of students and staff whatever external financial arrangements are secured.  Universities and colleges are not a commodity to be bought and sold simply for asset value; they perform a major public service and students, in particular, make a serious investment in their future by enrolling in higher education.  This is why it is so important to ensure that whoever invests in higher education, and indeed education generally, do so with the right intentions and the right experience.  This, in turn, requires an additional dimension to due diligence.  Will this happen, given the current turbulence in the world and the temptation to take short-cuts, worryingly observed in contract negotiations elsewhere?   There is, indeed, a serious debate to be had.

by Deian Hopkin