Evaluating Opportunities in For-Profit Education
I also think the private equity is missing a trick on assessing the For Profit education opportunity. The For Profit Higher Education companies in the United States are very profitable, but their business models may not be replicable. Part of this is timing issue: At a time of austerity, the fact that these institutions receive a lot of public money has generated quite a bit of debate. This is coming to Britain: The favourite slogan of the detractors of private education has been that this will mean diverting the money required at the nation's public universities to private providers and allowing them to make a profit, which is unlikely to be very popular. The General Secretary of the National Union of Students (NUS) has already warned the government of an 'NHS Moment', he was referring to the angry public reaction to the plans to divert money from National Health Service (NHS) to private providers, and a scandal involving a large back-to-work training company, A4E, has dominated the national news in the last couple of weeks. The balance sheets of US For Profit Higher Ed clearly reveals that the university status isn't very profitable if the public subsidies are removed from the equation; the investors in Britain can hardly count upon receiving much public money over a sustained period of time.
And, finally, degrees are about prestige, and I am not sure private equity's time horizon or expectations are in line with what will be required to create that prestige. One is possibly talking about multitude of decades here. But, most importantly, prestige, as it is currently construed, is all about selectivity, and the mission of private colleges - that of serving the middle income middle ability non-traditional students who can't usually make it to the top universities - is at odds with the quest for selectivity. Again, this is one area where we do not have an existing model - Harvard may have prospered as a private college, but it was from a different era - and creating prestige required to make the degree award meaningful is surely outside the private equity's planning horizon.
Indeed, the alternate model of For-Profit colleges offering degrees from a public university has its downside. It is dependent on the changes in the university's political climate, as the overnight decimation of University of Wales' network of centres have shown. However, one can avoid such trouble by choosing one's partners carefully and doing what's needed to keep the partnership healthy and trusting. However, such relationships can have huge upside: A close and trusting relationship can let a private college take advantage of the university's prestige, maintain the flexibility of awards and yet avoid the attendant costs. Accepted that nation's top 30 universities may not want a relationship like this at all, but the universities at the middle tier are perfect for the opportunities private colleges are pursuing.
In this context, one can contrast two private colleges in Britain, Greenwich School of Management and London College of Accountancy, which, at one point, was pursued by the same private equity fund, Sovereign Capital, at the same time. Finally, Sovereign decided to buy GSM over LCA, primarily because GSM had more local UK students (and the student visa changes were meant to affect them less) as a proportion of their student population (while LCA had more students). LCA had a close and long standing relationship with Anglia Ruskin University, and was able to create courses, such as Bachelor's degrees which can be delivered over two years instead of three. GSM had a relationship with Plymouth University, which is higher ranked than Anglia Ruskin, and offered their degrees. The other reason for preferring GSM was that they were on the road to degree granting authority, whereas LCA was not there yet. However, at the hindsight, LCA's size and close relationship with the university has played out better: Since the LCA students are sponsored by the university, they evade the visa restrictions, quotas as well as privileges for the students, altogether. On the other hand, GSM, is rethinking whether degree granting privileges are worth the trouble, and whether anyone would want to have the Greenwich School of Management degree instead of a Plymouth degree.