Schools, colleges and universities

Private equity funds continue to dominate the K-12 and post-secondary education markets, attracted to operators with robust pricing structures, resilient demand through the cycle, negative working capital requirements and strong forward visibility of revenues.

This, in combination with favourable market conditions such as an increasing willingness for parents to invest in private, is drawing global investors to the sector.

However private equity funds increasingly find themselves competing in a market with a lack of quality assets of scale, where leading players are courting interest from not just European funds but also those domiciled in the US and China. As such investors are either paying a premium for a platform or adopting buy-and-build strategies.

A good example of a successful buy-and-build is Minerva Education in the UK which has completed five acquisitions under the ownership of August Equity. Other private equity backed schools groups to have completed bolt-ons include The International Schools Partnership, which bought Spanish private school chain Colegios Laude, and Cognita Group which leveraged its investment from KKR to fund expansion in Latin America. Premium schools provider Inspired has also been acquisitive throughout Europe.

The deals highlight the significant opportunity for M&A in what remains a highly fragmented schools market, but also the supportive nature of private equity groups to provide follow-on capital. With single school operators typically being acquired for high single digit EBITDA multiples, groups are realising the opportunity to build scale and multiple arbitrage.

Profitable education groups of scale are fetching premium multiples. Good examples include Sovereign’s recent purchase of Eaton House, where the multiple was reported to have been between 12x-13x EBITDA, and Kaplan’s purchase of Mander Portman Woodward, a group of independent sixth form colleges.

Another trend is the growing appetite from Asian buyers to invest in an authentic British education. In 2016, standout deals included Sailing-Jiao Tong University Education Fund’s purchase of Astrum Colleges, and Achieve Education’s acquisition of Chase Grammar. It is a trend very much set to continue with funds such as Jinke Holdings still searching for their platform.

It is part of a wider trend of universities becoming increasingly reliant on higher paying international students and forging partnerships with pathway providers who play a vital role in foreign student recruitment. The concept, pioneered in Australia by Navitas, targets foreign students preparing for admission to English-medium undergraduate studies and combines English language classes with cultural adaptation courses. It is a rapidly growing market and one that buyout funds have aggressively targeted. For example, three of the top five largest private providers, namely Study Group, INTO University Partnerships and Cambridge Education Group, operate under private equity ownership. The US is also an up and coming market, particularly given the falling enrolment numbers.

With the average student debt upon graduating standing at €38,000 in the UK, it is no surprise that students are trading off an all-encompassing university experience for more tailored degree programmes from private providers. Germany, whose higher education system is entirely publicly funded, is one of many countries seeing a significant rise in the number of career-focused private universities. This is creating significant opportunities for M&A as the European market consolidates.

For instance in Switzerland, French private equity fund Eurazeo acquired Les Roches International School of Hotel Management and Glion Institute of Higher Education. In Germany SRH Holding purchased EBS University of Business and Law, and in France the Studialis Group was acquired by Galileo Education. Netherlands based consolidator Global University Systems has been active in both the UK and Ireland acquiring University of Law and IBAT College Dublin respectively.

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