The past few months have seen Ardian purchase Study Group, Navitas on course to be taken private and, most recently, news of EC’s North American Higher Education division moving to Study Group. Between 2010 and 2014 the pathway market was characterized by over a billion dollars of private investment and a dash for growth in university partnerships. But as global competition, technological disruption and changing demographics bite there are closures, sales and realignment.
As the market becomes more challenging investors have some strategic decisions to make. Recent developments and news coverage gives some grounds for speculation on what that might mean.
Cambridge Education Group/Bridgepoint Capital
In 2013 Bridgepoint Capital paid ‘an enterprise value of UK £185m’ (around $241m) for CEG. One commentator suggested, “The pathways sector has delivered remarkable growth and profitability over recent years. Strategically the space is exciting..”. It seems possible that the future will be about excitement in other parts of the portfolio.
CEG recently confirmed the closure of its ONCampus individual pathway centers at Rochester, Rhode Island, CSU Monterey Bay and the University of North Texas. The relaunch of ONCampus Boston in fall 2019 and direct recruitment at Illinois Institute of Technology keeps a toehold in US HE. But with no further ONCampus developments in the UK since 2016 it looks like it has called time on pathways linked to individual universities.
But the Group has other options and is investing in the CATS College brand (colleges for 14-18 year olds) with the first China centers opening in March 2019. The two centers are in Shanghai and will provide a path for students to join CATS UK Colleges and other CEG options in the UK. In the UK the company’s digital delivery arm has also been growing and added Cass Business School and the University of Hull as partners in 2018.
It seems plausible that CEG is focusing on driving the CATS business and building a growth story around digital while putting pathways into a holding pattern.
INTO University Partnerships/Leeds Equity Partners
In 2013 Leeds Equity £66m purchase of a 25% stake in INTO valued the business at around £266m. Six years later the Sunday Times has ‘cautiously, put a £170m price on the operation’ (entry 876, Sunday Times Rich List 2019. Public filings show that in 2018/19 a preference dividend of £15m was paid for the first time, presumably to Leeds.
INTO added the medium sized, public, Illinois State University and smaller, private institution, Hofstra to its US portfolio in 2018. But data from Oregon State and Colorado State reflects the tightening of the US market and the possibility that new partnerships may erode the enrollments of existing partners. INTO hasn’t opened a new UK partner since 2016 and average enrollments at mature partnerships (five years or more) and wholly owned centers shows that overall recruitment in the UK is no greater than 2014/15 levels.
The company’s joint-venture model was a key differentiators in the early days but has been substantially replicated by a US competitor. INTO is focused on pathways but has the potential to build business as a recruiter of non-pathway international students for existing or new partners. If Leeds Equity are looking to move on this could be the moment where the business recapitalizes to buy out their 25% share and perhaps get some headroom to invest in new business opportunities.
Shorelight
Shorelight was six years old in January 2019 and is the only major pathway provider with no interests outside the US. The portfolio grew in the last twelve months with the additions of Cleveland State University (March 2019) and Mercer University (October 2018). Eighteen university partners mean that there are a lot of seats to fill at a tough time for the US market.
With the squeeze on international enrollment growth in the US, Shorelight probably needs to dominate pathway recruitment to deliver the results expected by partners. The growth in pathway options and degrees delivered in English around the world has made it a buyers’ market for students and recruitment agents. Any outperformance in recruitment is likely to come at a price and provoke a competitive response.
Declining markets, increasing costs and over-supply are not easy problems to solve and it may be time to look for new options to spread costs and risks. Given Shorelight’s recruitment infrastructure and evidence of success with some good universities in the US it could be productive to pitch for a high-quality university in the UK, Europe or Australia. A big name that doesn’t want to be part of the Kaplan, Study Group, Navitas or INTO portfolio might find a dedicated partner worth a conversation.
Study Group/Ardian
The purchase of Study Group by Ardian positioned the investor with the ambition to make ‘strategic acquisitions’, and a belief that pathway growth would continue to be ‘double digit’. It is difficult to see that organic growth in the US will be the main driver of the latter prediction. But taking on EC’s operations in the US appears to signal an intention to continue to build market share.
Other recent Study Group signings have been with sub-degree colleges in Canada providing a route to degree level study, post-study work and possibly citizenship. It may be a smart way of infiltrating a market where universities have seemed relatively resistant to the lure of pathways. In 2017, 41% of international students at post-secondary level, including a 67% increase in those from India, studied in colleges.
Study Group’s business is diversified geographically and has high-school/college options as well as pathways. The UK/Europe pathway business looks stable and recently announced a new partner in Aberdeen. In the US the Managing Director has just left and it may be a good moment for strategic review in the context of market conditions.
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