Education Summit: how to find and transact the right opportunities in the education sector

20th October 2023
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Against the backdrop of a more challenging M&A environment, suppressed by inflation and rising interest rates, finding and transacting the right opportunities in the education sector is an increasingly important question for investors. Mark Jeynes, Partner at CIL, recently joined a panel at the Education Investor Summit to debate this topic. Here’s a summary of the key takeaways:

There are interesting opportunities for investors across the education sector.

Despite some of the wider market challenges, there are a number of exciting education opportunities.

  • Early Years: Eight of the top ten nursery chains are private equity backed, with a growing emphasis on premiumisation of the nursery experience and consolidation into fewer, larger nurseries.
  • K-12 – International Schools: The large international schools groups remain active in M&A, both overseas and in the UK, as parental demand for international education (particularly for British curriculum schools) remains consistently high.
  • Higher Education: Universities are keen to secure new revenue streams, creating opportunities for Alternative Providers who can provide access to new student cohorts and Online Programme Management (OPM) providers, who partner with universities to offer degrees online.
  • Apprenticeships: Employer and learner understanding of apprenticeships continues to improve, albeit headline market demand appears to be reaching maturity. With a scaled apprenticeship platform, some investors are keen to diversify into other segments (and funding streams) such as higher education and corporate training (accessing L&D budgets, rather than the apprenticeship levy).
  • Corporate Training: Investor appetite for training providers delivering compliance-based training continues to be robust, given the recurring nature of such training and visibility (of revenues) provided. More broadly, organisations continue to look for solutions to address growing skills gaps and vacancies.
  • Education recruitment: We are seeing ongoing challenges in relation to teacher recruitment, and retention, driving opportunities for recruitment agencies, many of which are PE-backed.

Some deals are taking longer to find and transact, with investors becoming more selective and demanding in response to market challenges.

We are seeing some processes taking longer to progress to allow time to build a stronger investment case and, in some cases, sale processes have been pushed out to 2024. In some segments of the market, there are specific market headwinds:

  • K-12 – Independent Schools: The Labour Party has indicated its intention to impose VAT on private school fees. The impact of the imposition of VAT on fees is expected to vary by region in the UK, but there is no doubt that some independent schools will be hit hard by such change. Investors considering opportunities in the independent schools sector will need to ensure that the impact of this potential change is evaluated fully.
  • Higher Education: The challenging political environment in higher education continues to impact the attractiveness of some platforms that are focused on international students. For example, from January 2024, international students travelling to the UK will no longer be able to bring dependants on their student visa, unless they are studying a research-based postgraduate degree programme. This change is likely to impact the relative attractiveness of the UK as a destination for international students.
  • Services to K-12: The funding environment for schools continues to present challenges, as schools look to prioritise limited budgets. Against this background, technology solutions that can drive efficiency and engagement within schools, improve pupil outcomes or support staff retention, can represent attractive growth opportunities.

For investors already active in the sector, there continue to be opportunities for consolidation.

Many segments of the education market continue to be highly fragmented, resulting in opportunities for investors to pursue a buy-and-build strategy:

  • Early Years: Ongoing consolidation opportunities given the fragmented nature of the market, albeit with growing competition for high-quality nurseries and some challenges associated with the cost of living crisis in the UK.
  • K-12 – Independent Schools: A number of the PE-backed independent school groups have continued to pursue acquisitions of standalone schools in the UK.
  • K-12 – International Schools: International school groups are pursuing aggressive M&A strategies, with recent acquisitions including Boundary Oak School in Hampshire, the prep and senior schools that make up Alpha Plus Group and Sherfield School, also in Hampshire – these schools being acquired by three different platforms.
  • Services to K-12 – Education Recruitment: There are several hundred agencies active in the supply teaching market. Some of the platforms have pursued an active buy-and-build strategy over the past few years, with scope for further consolidation.
  • Services – Edtech: There has been consolidation in the market for school management information systems and adjacent functionality through a series of acquisitions by PE-backed providers.

The ongoing shift towards digitalisation in education – a trend that was accelerated by the pandemic – has also resulted in new investment opportunities.

The adoption of technology-based solutions across the education sector has also resulted in new opportunities for investors. For example, new platforms have emerged offering tech-enabled safeguarding services for schools and Online Programme Management in higher education – partnering with traditional universities to offer degrees online. In other subsectors, such as apprenticeships, virtual training is now commonplace.

Despite the prevailing market conditions, we anticipate a brighter outlook for M&A as we enter 2024.

We expect confidence to gradually return to the market as the economic outlook improves.

CIL’s Investment 360 Index – with data collected annually over August and September from a survey of ~150 investment and business professionals – suggests that M&A activity is expected to improve. Having further declined in 2023, with 84% of respondents describing deal activity as ‘low’ or ‘very low’, 78% see M&A deal activity improving over the next 12 months, a welcome development.

To find out more details on our latest research and sector credentials, please reach out to our Education and Training Practice.

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