Business Services Sector Comment – November 2015

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M&A shows no signs of slowing in the higher education market

October saw a further multi-million pound deal announced in the education sector as US private college group Apollo Education acquired Career Partner Group (CPG). Backed by mid-market private equity fund Auctus, CPG is one of the largest proprietary post-secondary education providers in Germany and provides on-campus and online bachelor and master programs in business and tourism, and corporate training programs. The €96m deal comes at a time when Apollo’s key subsidiary University of Phoenix, which accounted for 84% of revenue in FY15, continues to experience declining enrollment levels. However, the group’s other reporting division – Apollo Global, which focuses on the international education market – has been expanding rapidly, having made acquisitions in the UK, Mexico, Chile, Australia, South Africa and Brazil. This further deal provides strong exposure to the fast-growing German market and will help the group to close the gap on North American peer DeVry.

The deal is a good example of trade buyers’ appetite to make strategic geographic acquisitions in the higher education market. Another example is the recent sale of the College of Law, now known as Ulaw, which was sold to Global University Systems in June. The deal represented an exit for Montagu, the private equity arm spun out by HSBC, which had already recouped €97m of its investment from the sale of its Bloomsbury campus the previous year.

However, whilst trade acquirers continue to be selective about opportunities, it is private equity that has been the dominant force in driving activity in the sector. Recent deals in the higher education market include Providence Equity’s acquisition of French-based higher education group Studialis and back in 2013, Apax Partners purchase of INSEEC, another leading player in the French market. In the UK, buy & build specialist Sovereign Capital owns Greenwich School of Management, an independent school of higher education that partners with Plymouth University to award degrees.

Private equity continues to be an attractive option for shareholders as they often put up additional capital to fund acquisitions. Consequently, leading private equity backed trade players are well placed to drive consolidation in the sector and capitalise on a highly fragmented market with a large number of single-site operations.

As a further buyer group, real estate players are also demonstrating interest in the sector. UK real estate investment specialist Delancey Estates’ acquisition of UK education provider Alpha Plus in 2007 is a good example. The motive behind the investment is mainly driven by the asset value and a bet on it appreciating.

In our view, we are not yet at the top of the market and fully expect deal levels to rise through 2016. Positive market dynamics, including a decline in public funding, a growing number of adult learners and the increasing importance of education in knowledge-based economies, is encouraging both financial investors and trade to step up their levels of M&A. There are a number of private equity platform investments in the latter stages of their investment cycles and these assets are likely to stimulate an active secondary market. Further, trade players, who themselves are often private equity backed, are seeking bolt-on opportunities and international expansion.