The economic crash heralded a period of unprecedented austerity and one which continues to hang a large shadow over levels of youth unemployment, especially in southern Europe. In light of this, governments have been ramping up investment in their vocational skills programmes in a bid to improve competitiveness and productivity.
For remedies, governments have been looking at countries such as Germany which continues to run a hugely successful vocational schools network of around 11,000 colleges, a quarter of which are privately sponsored. This network is widely perceived as contributing to the country’s low rate of unemployment among young people.
In the UK the funding landscape has been ever changing in recent years, and this Spring saw the launch of the Apprenticeship Levy which should be a positive step towards tackling the ever increasing UK skills gap.
There has already been significant capital committed to the skills market in anticipation of the Levy. For instance, Silverfleet backed the secondary buyout of Lifetime Training, a deal which followed RJD’s investment in Babington Group, a transaction advised on by Clearwater International. These deals followed MML’s investment in Learning Curve Group, a diverse skills provider.
The highly fragmented skills market is ripe for consolidation as smaller players lack the infrastructure and relationships with larger employers to maximise the opportunities that the Levy will bring. Activity within this space has so far been limited but we expect to see some M&A at the smaller end of the market.
A key component of UK skills training is delivered through the UK’s 300 FE colleges, a significant number of which have been struggling for several years with continual pressure on funding, particularly the Adult Skills Budget. Forward thinking colleges have taken to merging with other colleges or acquiring of private training providers to gain access to relationships with employers or new areas of provision.
Private providers within the further education sector have been looking to extend their reach into the higher education market. This is being driven by the additional revenue opportunity derived from the extended learner pathway of taking a 16 year old through a higher education programme. In light of this, many have been actively developing their degree curriculum through M&A.
With the exception of Staffline Group, large corporates have lost out to private equity when it comes to M&A in the skills market over the last two years. Babcock, Interserve, Capita and Maximus all have a significant presence in the market and we would expect them to continue to compete for high quality assets in the sector.