Tag: pathways

Remember the Name

It’s always a pleasure to have data released contemporaneously so we are grateful to colleagues at INTO University partnerships for sharing enrollment statistics related to their US university partners last week.  We’ll come on to possible reasons why this might have appeared but note that it might help flesh out any data released on Monday, November 13 in the IEE Fall 2023 Snapshot on International Enrollment.  For now, it’s worth digging in and seeing how this detail matches up against earlier application data released by INTO and the emerging partner university data on fall 2023 enrollments.

What a difference six months makes

The enrollment growth and application growth numbers reported by INTO this year are similar only in that the words “huge growth” are used in the graphics.  Back in May 2023 INTO indicated a “136% growth in applications for forthcoming intakes this year”.   The graphic indicated this was from a global average growth in applications of 201% for direct entry and 52% growth for pathways.  The average was driven largely by applications from south Asia and the Americas with China, Hong Kong and Macau lagging some distance behind.

In their recent release on growth in enrollments for US partners the numbers for direct entry and pathways have been aggregated and the contribution of source countries has shifted.   The headline stat is that INTO are claiming an average 34% growth in enrollment for their US partners in the fall 2023 intake with the Americas leading the way as a source market.  Because we are dealing with percentages and they are spread across a range of partners and courses the headcount is not known, the base numbers are a mystery, and the split between pathways and direct is not possible to divine. 

However, the media release indicates this means “more than 2,900 students..have enrolled into a range of undergraduate and graduate programs with INTO’s US partners for the Fall 2023 intake.” This number includes “..students eligible for direct admission as well as those opting for pathway and other programs supported by INTO Centers.”  We might presume, with reasonable certainty, that the claim would have been “nearly” or “approaching” 3,000 if it had been more than 2,950 students.

On this basis the simple maths, using 2,950 enrollments as the fall 2023 number, is that INTO’s entire US intake across 19 listed comprehensive and recruitment partnerships, rose by c750 year-on-year i.e. an additional 34% on 2,200.  That’s an average of, um, 39 per university if each got an even share.  Because INTO does not have responsibility for enrollment across all courses at its partner universities it is not possible to know the extent to which the INTO numbers impact upon the overall university performance.

An analysis of publicly available data from two INTO partners who have published fall 2023 enrollment details sheds some further light on this.

University of Alabama at Birmingham (UAB)

The year-on-year change in undergraduate and graduate non-resident aliens enrolled at UAB is +242 (up 17%)1.  As is probably expected with the shift in enrollment markets, the bulk of this is in graduate enrollment with undergraduate numbers falling.  The number of part-time non-resident alien students in the total has grown by 115 out of the 242, which would mean FTE enrollment has not grown by the same amount as the headcount and the income generated is probably lower. One possibility is that these are dependents on F-2 visas.   

        

Source: The Office of Institutional Effectiveness and Analysis, University of Alabama

(Note: Between Fall 2022 and Fall 2023 the description changed from Non-Resident Alien to US Non-Resident but there is no indication that the classification of students included changed.  Personally, I would wholly applaud the removal of the word “alien” from any description of international students.)

A 17% increase in enrollments is some way short of the 34% average increase indicated by INTO and the increase in part-time further reduces the impact of the intake.  It may simply be that INTO does not recruit to most UAB courses so their success is not reflected in the overall numbers.        

George Mason University (GMU)

As discussed in a recent blog the university level growth at GMU in year-on-year fall 2023 enrollment of “non-resident aliens” was 9.9% with an extra 389 students. Again, the driver was master’s level students with UG in continued decline.  The INTO Mason pathway delivered an additional 12 students over its fall 2022 intake which was a growth of 9.2% and left it 100 below the pre-pandemic 2019 intake.

Source: George Mason University Office of Institutional Effectiveness and Planning

The Bigger Picture

INTO’s media release quotes the “prime example” of “the partnerships at The University of Alabama at Birmingham (UAB), Suffolk University, Hofstra University and George Mason University.”  No mention of the long-term poster child at Oregon State University (OSU) where internationals enrollments declined from a peak of 3,556 in fall 2019 to 2,338 in fall 2022.  Underlying this is that the INTO pathway has suffered a significant decline from its peak of 1,496 students enrolled in fall 2014 to just 250 in fall 2022. 

It would be a surprise to many if OSU has not undertaken work to develop their programs to provide support and maximise the success of international students. The omission is a good reason that the 2023 numbers from OSU could make interesting reading when they are released in a few weeks.  They should also give some insights into the way that fluctuations in the source markets have manifested themselves in enrollments for both direct entry and pathways.

Source: Oregon State University, Office for Institutional Research

It seems possible that by choosing to offer separate pathway and direct recruitment applications numbers in May but aggregated enrollment numbers in November, INTO has masked the slow progress of pathway operations in the US in reaching pre-pandemic levels.  It will be particularly interesting to see how the numbers of Chinese students has altered year on year and historically the OSU data has provided that insight at a granular level.        

The limitations on analysis emphasises the frustrations when organizations release percentages rather than headcount numbers and is why the detail offered by some universities is so valuable to gain insights.  It would also be reasonable to say that one of the reasons universities work with private sector partners is to enhance their overall global profile rather than simply recruiting onto specific courses.  In that respect one might argue that UAB and GMU are underperforming in the INTO portfolio so it will be interesting to see how their overall international numbers relate to the Open Doors figures for the sector next week.        

The Even Bigger Picture

There is no doubt that around the world there has been a resurgence in global student mobility.  Recent OECD reports indicate that “international student flows reached a record high in 2022” with just under six million students abroad in higher education. There is growing confidence in the continuation of this trend with Holoniq predicting 8 million students “enrolled with foreign institutions”, possibly even 9 million, by 2030.  Eight million students studying overseas has long been a part of the higher education sector’s holy grail and the origins of this were analysed in a blog as far back as February 2018.

Notwithstanding this, INTO’s increased profile raising and willingness to engage with direct recruitment partners might suggest that we are, again, in a period when there is a search for new investment.  With Navitas active in buying parts of Study Group’s business in May and other signs of merger and acquisition activity picking up this might be a good moment to promote interest in an international recruitment business with momentum.  It might be wishing too much, however, to hope that investors are as swayed by short-term bounces or long-term “predictions” as they were in the early 2010’s. 

Investment Dealers Digest was, apparently, the first non-skiing print publication to use the metaphor of investment bankers who had “been out over their skis a little bit” on a deal.  In this context, interested parties might note that Holoniq’s predictions are tempered with a range from 6 million to 9 million and that we are already seeing the difficulties faced by many countries in managing the scale of the influx of international higher education students.  Also worth considering is the continuing sophistication of technology in delivering education, the spectre of nationalistic governments managing their borders more closely and the propensity of global systems to succumb to climate, pandemic and economic shocks. 

NOTES

As always the analysis is a genuine attempt to reflect publicly available statistics. Authoritative comment or correction of any errors or misunderstandings in the data interpretation are welcome and will be acknowledged.

The blog title reflects the elusiveness of data that is only expressed in percentages. In the song Remember the Name by hip-hop ensemble Fort Minor the lyrics say, “This is ten percent luck, twenty percent skill fifteen percent concentrated power of will. Five percent pleasure, fifty percent pain And a hundred percent reason to remember the name.” It might be a good description of the work of an international recruiter trying to promote their university!

Image by Gerd Altmann from Pixabay

Knocking on Open Doors

Each year the Open Doors announcement of US international enrollment numbers is given a big build up but only serves as a reminder that the higher education sector’s approach to data release is antiquated.  A delay of a year in publishing student numbers might have been acceptable in the days of quill pens1, abacuses2, parchment3 and pigeon post4 but it is difficult to accept it in the early 21st century.  So, on November 13, 2023, Open Doors will give us something that any marketer, recruiter or strategist will find as satisfying as a warmed up meal – congealed, lukewarm and not nearly as appetizing as something freshly cooked.

The figures released will relate to the 2022 academic year and are not likely to tell decent international officers very much of interest.  That recruiting season is long in the past and the numbers will provide little insight for the 2024 cycle, the impact of a resurgent Australia, developing markets or the new competitive spirit around the globe.  What makes it doubly frustrating is that most universities already know their 2023 enrollment numbers and some make the data available. 

Looking at these institutions provides some guidance on what has happened this year and occasionally at a good level of detail.  It’s also a good place to see how earlier claims about application rates may or may not have been a decent guide to enrollment.  For some institutions there is even enough data to see how their pathway operations are doing.

Sunrise or False Dawn

INTO’s press release of May 2023 suggested a “Strong surge in international student demand across INTO partnerships in the United States”.  There was an average of 52% more applications for “pathway and INTO Center supported programs” and a 201% increase in applications for “directly entry” (sic).  The release came just one year after the University of South Florida took action that, it claims, terminated the joint-venture and just two months before the University of South Florida sought a declaratory judgement to enforce winding up of the partnership.5

Source: INTO University Partnerships, May 2023

It is reasonable to note that the figures were aggregated across all partners but it’s interesting to see how things played out in enrollment growth at an individual partner university.  George Mason University’s (GMU) recently available fall census figures show that the pathway college and joint-venture INTO Mason has seen a modest increase of 12 students year on year (up 9.2%) and is still 100 below the pre-pandemic 2019 intake.  2016 was the peak intake and there seems little chance of recovery to those highs.

At the university level, the total growth in enrolled “non-resident aliens” was 9.9% (389 students).  This was driven by postgraduate masters enrollment while undergraduate enrollment continued its decline from a high point in 2019 and remains below the 2016 level.  There seems little evidence of a resurgence in growth from China but universities still due to report may give us more detailed insights. 

Source: George Mason University Office of Institutional Effectiveness and Planning

INTO has recently announced a recruitment partnership with the University of Oklahoma (OU), Norman campus, and that institution may have been interested in the potential suggested by INTO’s stated growth in applications.  A glance at the enrollment data indicates that while international first-time freshmen numbers at OU have been relatively static since the pandemic the bounce in total international students has seen a 17.5% increase since the low in 2020.  Numbers for Fall 2023 are not yet available but it seems likely that OU would welcome direct recruitment growing closer to the GMU levels.      

Meanwhile Auburn University, a Shorelight partner, is also showing how difficult life can be for pathway programs.  The number of on campus, resident aliens enrolled in the four listed Auburn Global programs below continues to, at best, bump along the bottom. For ease and clarity the data shown is taken directly from the Auburn University website. 

 Source: Auburn University Office of Institutional Research

At a top level, however, the rise in non-resident alien graduate recruitment has pushed Auburn University back to pre-pandemic levels of enrollment. As with GMU the decline in undergraduate appears to have stabilized.

Source: Auburn University Office of Institutional Research

As noted in previous blogs Shorelight has made a significant pivot to direct recruitment and continues to add new partners while slimming down its pathway offerings.  This seems to be a reasonable direction of travel in the US. 

Paved With Good Intentions

The pathway model continues to have some strength in the UK and Australia markets.  In the UK this looks to have been propped up by “International Year One” activity that exploits the gap between the lowest level of English language capability for university study acceptable for visa purposes and the lowest level most universities are prepared to accept for direct admission.  A significant competitive threat (leaving the UK Home Office aside) is that some universities seem increasingly willing to reduce requirements and allow direct entry which may limit the scope for growth for pathway operators.

Over time the US higher education sector has tried the pathway model but appears to have found it wanting.  The response of pathway operators is to try and leverage their expensive global recruitment organizations and become carriers of multiple university brands for direct recruitment purposes.  Brand dilution and switch hitting of students between brands seem obvious potential concerns for institutions when considering such arrangements.

All the time there is also the tick-tock of governments looking at the damage to national reputations from largely unregulated and increasingly discredited recruitment practices involving agents.  It is not that agents are necessarily unscrupulous but that technology has enabled a flood of new entrants which has destabilized a model where universities had at least a passing understanding of who was using their brand to recruit.  Technology and the aggregator model have probably exacerbated the problem to the detriment of many, including the visa system in Canada and the ability of university admissions teams around the world to keep up with the volume.

It’s a complex time which is another reason that we could do with near contemporaneous release of data from the sector both to optimise recruitment efforts and to allay any unjustified responses from legislators.

NOTES

As always, the data shown is a genuine attempt to interpret and represent information available on university websites. The source is shown for reference. In the event that my interpretation or understanding of the data is incorrect I am happy to receive authoritative clarifications for publication.

  1. Quills were the primary writing instrument in the western world from the 6th to the 19th century.
  2. The word abacus dates to at least AD 1387 when a Middle English work borrowed the word from Latin that described a sandboard abacus.  The Sumerian abacus appeared between 2700 and 2300 BC.    
  3. Parchment is a writing material made from specially prepared animal skins.  The word is derived from the Koinē Greek city name, Pergamum in Anatolia, where parchment was supposedly first developed around the second century BCE
  4. In the 5th century BC the first network of pigeon messengers is thought to have been established in Assyria and Persia by Cyrus the Great.  The Romans used pigeon messengers to aid their military over 2000 years ago.
  5. The case is complex and this sentence summarises the situation. For further reading see The Complaint for Declaratory Judgement which is Filing # 153460265 E-Filed 07/15/2022 07:45:26 PM in the Circuit Court of the Thirteenth Judicial Circuit in and for the state of Florida Civil Division. I have written a number of blogs on this ongoing issue.

Image by Dennis Larsen from Pixabay

Rulings, Filings and Finances

There have probably been better fortnights for INTO University Partnerships (INTO) than the last two of July 2023.  Losing a decision in the court case against the University of South Florida (USF) and missing financial filing deadlines for both INTO University of East Anglia and the parent company are not calculated to bolster confidence or impress existing and potential partners.  Rumours of another round of redundancies and outsourcing also reflect the challenges facing the business.

Truth and Wisdom

Following a hearing on 27 June, Circuit Judge Darren D. Farfante has dismissed Count V of the Second Amended Complaint filed by INTO against Defendants Jennifer Condon, Karen Holbrook, Nic Trivunovich, and Ralph Wilcox.2  In simple terms, the judgement noted that “…sovereign immunity bars Count V of the Second Amended Complaint against the FC Directors as pled.”  The Plaintiffs, INTO USF, Inc., INTO USF LP, and INTO University Partnership Limited, “…subsequently advised the Court that they will not amend and dismissal of Count V of the Second Amended Complaint should be entered for purposes of appeal.”

While the plaintiffs could choose to re-engage on this point if the case ever goes to appeal the position is that after months of assertions that the USF Joint Venture Directors had “breached their fiduciary duties”,3 that particular strand of the matter is closed.  It is difficult to believe that the legal pursuit of individuals hasn’t left some scars on both sides and it may have put the issue of personal liability into the minds of university joint venture board directors elsewhere.  Rulings in one state may not be directly applicable to another but they may offer a sense of how closing a similar joint venture could play out elsewhere. 

Hard on the heels of the judgement USF moved to “..dismiss IUP’s Supplemental Pleading4 with prejudice.”5  This appeared to be substantially on the grounds that Sovereign Immunity also “..Bars Counts X, XI, XII, XIII and XIV”.  The filing also states that that “…opposing counsel (i.e. INTO’s counsel) has not requested that the undersigned stipulate to the filing of a second amended complaint” which seems to suggest the judge will now determine the outcome on these Counts.    

It may be that forthcoming discussions will lead towards a settlement of some sort with notification that a Mediation Conference has been scheduled for 29 September, 20236.  One might think that both organizations would be glad to see an end to such a public dispute.  As always, the author of this blog does not claim any legal expertise and advises readers to seek detailed information to form their own opinions9. 

History Man to Remains of the Day

The decline of INTO’s first joint venture at the University of East Anglia (UEA) is a saddening tale for anybody involved in the successful early days of the initiative.  The rhetoric was largely about the game-changing nature of long-term public-private partnerships but for those involved in the reality of international recruitment the immediate opportunity for increasing enrolments was clear.  INTO has removed the UEA case study from its corporate pages but the early days were genuinely transformational.

While the crisis at the University and the departure of its Vice-Chancellor has broader causes the situation has been exacerbated by a significant decline in the enrolment and financial fortunes of the joint venture.  The late filing, for the second year in a row, of the joint venture’s financial statement due on 31 July, 2023, means it is not possible to know whether enrolments fell even further in 2021/22 but the direction of travel has been downwards since 2015.  It is also likely that this has contributed to UEA’s declining revenue from international students.

It seems reasonable to believe that the late filing may be due to broader discussions about the future of the joint venture relationship.  New vice-chancellor, Prof David Maguire, is on record as saying that the immediate future is about “survival of the fittest” and it is difficult to see a compelling case for preserving the joint venture while cutting back on schools of study that have formed the institution’s history and sense of self.  At a time when reports say 400 positions – equivalent to 10 per cent of the workforce – have already been lost at UEA through redundancies, severance and resignations, the extent to which the university should continue to help prop up a loss-making commercial venture must be in question.

There may be an alternative argument that the joint venture brings opportunities for direct recruitment to help UEA out of its current problems.  Whether to stick or twist and whether it is wiser to be the history man6 or look with confidence towards the remains of the day7 is a very real choice.  Given the length of the joint venture contract originally signed and what appears to be a lack of performance it will be interesting to see if UEA would consider the USF route to resolution.

Patet omnibus veritas8

INTO’s financial accounts to July 2022 noted that its cash position during the year had declined from £20.5m to £9.4m year on year and that it had “revised EBITDA covenants agreed with its bankers to February 2024”.  It’s difficult to know what is going on under the surface but rumours of further cutbacks are circulating and it seems plausible that there is a squeeze to cut costs early in the financial year that began on 1 August 2023.  The urgency may be sharpened by developing views on enrolment numbers because, as with many education businesses, a significant portion of revenue will be baked in quite early in the year.

A previous blog suggested some of the issues that the incoming CEO, in February 2023, might want to consider.  The Executive Team has already been slimmed down a reduction in higher salaries is to be expected when the 2022/23 results are published.  On the other hand, expenditure on opening University Access Centres seems to be continuing, there is a new partnership to launch at Lancaster University, the recovery of pathway operations in the US looks patchy and there is the spectre of more stringent visa controls in the UK ahead of 2024 recruitment.

In the US, the recent addition of a recruitment only deal with Montclair State University makes little headway in the struggle to recover and compete after several years of joint-venture closures and the acceleration of direct recruitment partnerships by main competitor Shorelight.  In the UK, the partnership with Lancaster University brings a high tariff institution to the party but Study Group didn’t seem able to keep Lancaster happy so the pressure to perform is certain to be on. There does not seem to be any news of further progress in Australia. 

INTO must also be waiting with bated breath on the outcome of the Manchester Metropolitan University International Study Centre tender.  There is rarely a dull moment, which may be why they have been a bit too busy to file their Confirmation Statement to Companies House.  Or it could be that there is even bigger news to come.

NOTES

  1. Truth and Wisdom is the motto of the University of South Florida
  2. Final Order: 07/24/2023 02:59:36 PM Electronically Filed
  3. Filing # 167652717 E-Filed 02/27/2023 07:53:06 PM (point 137 and others)
  4. Filing # 175778804 E-Filed 06/21/2023 09:45:06 AM
  5. Filing # 178214351 E-Filed 07/25/2023 05:09:59 PM
  6. Filing # 179194479 E-Filed 08/08/2023 03:23:11 PM
  7. A small homage to Malcolm Bradbury, author of The History Man (1975), one of the most evocative novels about university campus life of the era, who became Professor of American Studies at the University of East Anglia in 1970 and launched the MA in Creative Writing course.  The course has been attended by several eminent authors including Kazuo Ishiguro who won the Booker Prize in 1989 for his book Remains of the Day and went on to be awarded the 2017 Nobel Prize for Literature.  My best wishes to all colleagues and friends still working hard to make UEA a success again.
  8. “Patet omnibus veritas” is the Latin version of Lancaster University’s motto.  It translates to Truth Lies Open to All.
  9. The background to the court case between INTO University Partnerships and the University of South Florida has been outline in several previous blogs. As before the terms INTO and University of South Florida are used as short forms for the range of corporate plaintiffs and defendants. Full details and all public documents reference in this blog can be found through https://hover.hillsclerk.com/html/case/caseSearch.html the Hillsborough County Clerk of Courts search facility. Insert 22 for the year, CA-Circuit Civil for the Court type and 006001 for the case number.

INTO The Interim

Back in June 2021, INTO University Partnerships (INTO) appointed Olivia Streatfeild as its first woman CEO, and in June 2022 she became the first woman Director.  There were plenty of strategic decisions to make as the world struggled out of a debilitating pandemic and INTO reflected on a five-year period when it had lost six joint ventures and struggled to maintain enrollment volumes.  Just two years later agents have been briefed that long-term Andrew Colin lieutenant, John Sykes, is stepping in as Interim CEO.

As well as being a main board director and a “co-founder”, Sykes has been part of the operational, decision-making Executive Team throughout the last decade.  While the presumption might be that this will mean continuity it will be interesting to see how many of the Streatfield decisions stick.  Here are some other issues that might need attention.     

Beware the Fog On the Tyne

INTO’s engagement with Newcastle University has had its shares of ups and downs.  Since 2016 the average number of students enrolled in the INTO Newcastle center has varied from 1142 in the best year down to 627 in 2021/22.  The fluctuation in Operating Profit reflects the sensitivity to student enrollment.

NB: The Operating Profit excludes significant exceptional items in 2016, 2017 and 2018.  The 2019 and 2021 figures are as adjusted in the INTO Newcastle University LLP Annual Report.

In 2021 the LLP’s Annual Report noted that the joint venture based in Newcastle has moved to majority ownership of 51% by INTO.  The joint venture launched in London in 2015 as INTO Newcastle London and long term readers will know the shifting sands of the INTO operation in Middlesex Street, including the links with Josef Mifsud whose whereabouts remain unknown.  INTO Newcastle London came under the sole control of Newcastle University in late 2020 and while the changes in controlling party mean any intercompany transactions are no longer reported by INTO, we do know that in 2020 the JV was a indebted to INTO to the tune of £5.4m.

A small sideshow is that Newcastle University awarded a year-long contract starting in January 2023 for ‘The Provision of International Market Research and Business Development – USA’ including ‘in-country liaison, advice and marketing activity to support the University’s strategies.’  Perhaps surprisingly this was not entrusted to INTO’s US team but to Foothold America Inc.  To be fair Newcastle had already been awarded two contracts to INTO worth around £1m, starting August 2022 and November 2022, for similar work over three years in South/South-East Asia and China respectively.

Magic Kingdom or Repo Man

The US was once seen as the land of opportunity for pathway operators but it’s become increasingly harder work and INTO’s exposure is second only to Shorelight. The legal battle between INTO and USF is likely to be disruptive, time consuming and expensive and it continues with the next hearing scheduled for 10 May and a new round of discussions with a mediator to come.  All the while, legal arguments are being made about the extent to which the USF Directors may or may not have been in breach of their fiduciary duty to the joint venture.

If that’s not enough of a headache, 2023 has seen the end of the joint venture with Illinois State University added to the closures at Colorado State University (2021), Marshall University (2020) and Washington State University (2022).  The operation at St Louis University became wholly owned by INTO in 2021 and despite added firepower on the business development side in the US there does not appear to have been much progress in adding many new partners – either joint venture or direct recruitment.  Meanwhile, the enrollment decline in continuing operations at flagship joint ventures like Oregon State University are evident.

Source: Oregon State University Office of Institutional Research

The company’s own research suggests that only 34% of China, HK and Macau agents surveyed think they will send more students to the US in the coming year which, by implication, means 66% will send the same or fewer.  The struggles of the last few years have also seen US joint ventures stacking up increasing levels of debt to INTO with every single US joint venture showing higher debt than the year before in the 2022 Annual Report.  It is difficult to see the way forward.             

Happy Mondays or The Fall as Manchester Decides

In July 2019 the University of Manchester awarded a five-year contract to INTO’s wholly owned Manchester operation for “Managed Service Provision of Pre-Degree Programmes for International Students”.  It has probably been a significant driver of the INTO Manchester performance over the years and 2021/22 saw the operation roar back to achieve record recruitment and profit.  The contract was for 300k and the contract period ends in July 2024.

Alongside that is the tender for an embedded study center with recruitment opportunity with Manchester Metropolitan University (MMU) which is currently a partner of INTO Manchester.  It’s arguable that over the years MMU has done less well in terms of international enrollment than the popularity of the city suggests it should.  Both Kaplan (at Liverpool) and Navitas (at Swansea) have shown their willingness to become involved in capital projects as joint ventures so competition for the business could be hot.

If another provider wins either the University of Manchester business when it becomes due or the Manchester Metropolitan tender the consequences could be serious.  If it all goes wrong for INTO, the office by the Brighton seaside might echo to Morrissey lyrics like ‘Hide on the promenade, etch a postcard/’How I dearly wish I was not here.’

UK OK OR KO?

It looks like recruitment numbers are perking up in the UK but recovery is patchy with INTO UEA looking to be on life support as the university and the joint venture struggle with competitive realities.  While INTO University of Exeter enrollments withstood the pandemic reasonably well there has been little evidence of recovery in the recently released 2021/22 Annual Reports of joint ventures with Stirling, Queen’s or City .  While the HE sector in the UK has seen record international student recruitment over the past two years it does not seem to be feeding into pathway numbers.

Source: Joint/Venture Wholly Owned Annual Reports and INTO University Partnerships Annual Reports (NB: INTO UEA does not report for 2021/22 until July 2023.  For that reason the 2022 Total enrollment shown excludes the JV and is not wholly comparable with previous years.)

With Australia re-asserting its competitiveness, the US open for recruitment, Canada thriving and some evidence that increasing numbers of Chinese students are looking elsewhere for higher education it’s unlikely to get any easier.  INTO’s recent win at Lancaster University was good news for them but the QAA reports indicate that in 2018 it only had around 280 students and sector feedback is that Study Group found it hard going.  Whatever happens, the UK situation carries plenty of risks.

Sticking to the Knitting and Counting the Beans

The Interim CEO may want to look at some ratios and data from the INTO University Partnerships Limited Annual Reports available at Companies House.  The first confirms that the US contribution to turnover reflects the decline of the business.  Whether it can or will come back is an open question but I doubt it’s something to bet the house on.

A second issue worth thinking about is that data on staff attributed to the Group makes interesting reading.  Group staff costs in 2021/22 were more than 50% of turnover while in 2018/19 they were only around 38%.   It is possible that the categories have some underlying nuances and there have been job cuts in recent months but it seems a good starting point for operational efficiencies. 

Finally, in 2020/21 the number of employees earning over £100k a year was 40 while in 2021/22 it had grown to 48 – that’s 20%.  The number earning over £275k was four compared to one the year before.  For a business with revenue that was lower than 2019/20 that needs some unpacking.

The Big One

Perhaps the biggest strategic question is about the future ownership of the business and how quickly Leeds Equity would welcome some return on the £66m investment they made a decade ago.  The appointment of two relatively high-profile non-executives to the Board might suggest some intention to seek new external investment.  It’s also possible that Andrew Colin could take the business back into 100% sole control.

The final intriguing possibility, given the volatility and possible consolidation in the sector, is that this could be the moment where the business is sold.  Back in 2018 there were widespread reports that the business was up for sale with a price tag of £300m and in a sector full of rumours there have been unconfirmed suggestions that Navitas was showing interest shortly before the pandemic.  Taking on Lancaster, getting Manchester right and sorting out Newcastle would certainly strengthen the hand in any negotiation.

NOTES

Links are provided to publicly available information where possible.  Speculation and rumour are noted as such.  As always, the author would be happy to receive authoritative clarification on any specific points and will note any amendments.

Just some small notes on a few of the sub-headings:

1. Fog on the Tyne is a 1971 album and a single by Lindisfarne.  Footballer Paul Gascoigne provided vocals on a reworked single version that got to number two in the charts in 1990.

2. Magic Kingdom is a theme park at Walt Disney World where “fantasy reigns” while Repo Man is a 1984 film with a strong underlying commentary about the “last defense of capitalism” and “no sense of purpose”

3. The Happy Mondays and The Fall are Manchester bands.  The Happy Mondays were part of the Madchester sound of the 1980s and were named for the day their unemployment benefits arrived – “the day for getting off your face” as bassist Paul Ryder explained.  With 31 studio albums in 40 years (1979 to 2017) The Fall gloried in DJ John Peel’s description “they are always different; they are always the same.”   

Image by Gerd Altmann from Pixabay 

More JAWS for INTO and USF

Sequels are rarely as good as the original but after a new hope with previous reports of dispute resolution between University of South Florida (USF)1 and INTO University Partnerships (INTO)1 we may have reached a point where the empire strikes back.  For new readers, USF gave notice to voluntarily dismiss its case against defendants INTO on 3 January 2023, on the basis that the defendants were “taking the actions that the Financing Corporation’s declaratory judgment lawsuit sought.”2  This followed a hearing on 16 December 2022 where USF’s motion for the appointment of a Receiver for INTO USF, INC had been heard.  Eventually, on 13 February 2023, Circuit Judge Darren D. Farfante declined “USF Plaintiffs’ Motion for Appointment of a Receiver.”3 but the case has been reopened.

The following commentary attempts to outline progress and indicate key issues with reference to the publicly available filings.  These are complex issues and readers looking for a more complete understanding should access the Court records.  I make no attempt to comment on the merits of either case and welcome authoritative comments and amendment.   

Just When You Thought It Was Safe to Go Back in the Water

Even before the motion was declined USF had sought “..an order finding that the Financing Corporation is the prevailing party in its request for declaratory relief…..and is therefore entitled to attorney’s fees and costs, to be paid by Defendants…”4

The same day, INTO USF, Inc. and INTO USF LP filed to “…respectfully request that the Court (i) declare the INTO Parties as the prevailing parties in the declaratory judgment action, and (ii) hold in abeyance determination of the amount of fees and costs owed until the remaining claims between the parties are resolved.”5

There have been further filings on the matter on both the side of USF6,8 and that of the INTO parties7,9.   There is a good amount of legal argument but for the lay person the choice phrases include assertions like, “a pyrrhic victory”6, “completely ignores both Florida case law and the facts of this case”7, “..hoisted by their own petard”8, and “..premised entirely on a sleight-of-hand”9.  It’s all good knockabout stuff but one wonders how much lawyerly time and client money is going into this.  

The case then became an SRS Reopen Event on 16 February 2023.14  It appears that the “prevailing” party “..in the Declaratory Judgment Action (Doc #97) and Plaintiff’s Motion to Determine Entitlement to Prevailing Party Attorneys’ Fees and Costs (Doc #98)” will now be the subject of a Zoom hearing on May 10, 2023 at 2.30pm13

While this has been going on there have been developments in INTO’s claims of breach of fiduciary duty against the Jennifer Condon, Karen Holbrook, Nick Trivunovich, and Ralph Wilcox (collectively known in the case filings as the “FC Directors”).  In summary, INTO argue that they “…served as directors of INTO USF, Inc and owed it fiduciary duties, simultaneously served in positions for USF and prioritized the interests of USF over the interests of the Company in seeking its wind-down and termination.”16

This had originally been included as Count V of INTO’s complaint but had been challenged on several grounds including that the individuals had sovereign immunity by dint of carrying out their duties as a result of being employees of USF.  In a motion to dismiss this aspect of INTO’s case the filing noted “Section 768.28(9) protects state employees for torts committed within the scope of their employment.” and that “All the actions the FC Directors took that allegedly breached their fiduciary duty occurred while USF employed them.”11 The judge found in favor of this argument but while, “As pled, sovereign immunity bars Count V against the FC Directors” the Plaintiffs (INTO) were “..given leave to amend Count V of the Amended Complaint against the FC Directors.9

The opportunity to make such an amendment was taken in the Second Amended Complaint10.  Where Count V alleging “Breach of Fiduciary Duty Against the Former USFFC-Designated Joint Venture Directors” has been re-drafted.  There are several amendments but an example that indicates the tone says, “The Former USFFC-Designated Joint Venture Directors were appointed to the Board, and took on these fiduciary responsibilities to the Joint Venture, independent of the duties and responsibilities they owed to USF by the nature of their employment.”

The deadline for the defendants to respond to the Second Amended Complaint was originally 9 March 2023 but an extension to 20 March 2023 was granted without any opposition.12 There seems little doubt that this falls into thecategory of….to be continued.

Land of Lincoln Loss

All this comes as market reports suggest that the joint venture between INTO and Illinois State University (ISU) has come to an end with a direct recruitment arrangement remaining.17  The joint venture was formed in March 2018 and as of “June 30, 2022 and 2021, the Company had an accumulated deficit of $12,155,144 and $11,806,337, respectively.” according to the financial statements and reports.  It becomes the sixth of INTO’s eleven US joint ventures to close since 2020 (including INTO St Louis which is now 100% owned by INTO).

Perhaps interestingly,  ISU’s international student population (non-US citizen in student enrollment reports) appears to have climbed quickly over the past five years going from 511 to 736 from Fall 2018 to Fall 2022.  However, the significant change is year on year from 2021 (557 enrolled) to 2022 (736 enrolled) with the growth entirely made up of graduate students.  Meanwhile, non-degree seeking international students (the usual location of pathway numbers in US university enrollment data) fell from 44 in Fall 2018 to 14 in Fall 2022.

It seems possible that ISU has been able to benefit from the more widespread growth in graduate students from south-east Asia but that this has not flowed through in any meaningful way to the pathway operation.  That would reflect the situation seen at some other pathway Centers in INTO’s US portfolio.  It remains to be seen how other joint venture partners reflect on the situation as Fall 2023 comes into sharp focus.  

NOTES

  1. The case in the Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County, Florida Circuit Civil Division is formally between USF Financing Corporation (plaintiffs) and INTO USF LP and INTO USF, INC (defendants).  The terms USF and INTO are used in this blog for brevity.  The Consolidated Lead Case is 22-CA-006001, Div. L. and  filings referenced below relate to this case. (Joint Case Management Report – Filing # 162471158 E-Filed 12/06/2022 12:51:36 PM16)
  2. Filing # 163938884 E-Filed 01/03/2023 09:29:50 AM
  3. 02/13/2023 11:22:52 AM Electronically Filed: Hillsborough County/13th Judicial Circuit.
  4. Filing # 166039948 E-Filed 02/02/2023 05:03:54 PM
  5. Filing # 166035151 E-Filed 02/02/2023 04:30:42 PM
  6. Filing # 166713446 E-Filed 02/13/2023 05:30:56 PM
  7. Filing # 166710887 E-Filed 02/13/2023 05:03:58 PM
  8. Filing # 167161634 E-Filed 02/20/2023 04:55:28 PM
  9. Filing # 167148563 E-Filed 02/20/2023 03:16:05 PM
  10. 02/14/2023 01:11:28 PM Electronically Filed: Hillsborough County/13th Judicial Circuit.
  11. Filing # 167652717 E-Filed 02/27/2023 07:53:06 PM
  12. Filing # 162259450 E-Filed 12/02/2022 11:01:26 AM
  13. 03/08/2023 06:38:01 AM Electronically Filed: Hillsborough County/13th Judicial Circuit.
  14. Filing # 168483841 E-Filed 03/10/2023 01:09:08 PM
  15. Reopen event: A reopen event occurs when a motion, pleading or other recordable action occurs on a case that requires additional court activity after a disposition event has closed the case for court activity. Note that a reopen event involves at least one action and that additional post-judgment actions may occur before the case is reclosed.
  16. Filing # 162471158 E-Filed 12/06/2022 12:51:36 PM
  17. It is reasonable to note that both INTO and ISU appear to show INTO pathway courses on their websites.  Any update from either party is welcome.

Image by Mote Oo Education from Pixabay 

New Year, New INTO?

INTO University Partnerships’ (INTO) recently released Report and accounts made up to 31 July 2022 point to the impact of the pandemic, global student mobility changes and the financial health of pathways.  There are also three new board appointments in the past three months to consider in a higher education recruitment environment where talk of consolidation is gathering pace.  The court case with the University of South Florida is noted as a contingent liability.

And The Tide’s Gonna Turn1

Starting with the Board appointments, there is reason to celebrate as INTO moves from being a board of six men in the previous year’s Report to a smorgasbord (pun intended) of seven men and three women in January 2023.  That makes the group board bigger than the INTO Executive team of nine – four men and five women.  At the date and time of writing the new Board Directors haven’t appeared on the corporate website which is a bit of a shame as two were appointed at the start of November.

It’s not clear whether the new appointees signal a reshaping of strategic direction for INTO.  Annalisa Gigante started at Bain&Co and one profile highlights that “..her key focus areas are sustainability, digital technologies including AI and IoT, new business models, and building high performing teams.”  Nicholas Adlam was at Bain&Co for five years (not overlapping with Annalisa) and held a number of management roles before joining INTO as “growth and transformation” consultant in 2020.  I am guessing that Tamsin Todd is the same individual as the CEO of Find My Past but INTO is not listed on her LinkedIn profile and I can find no supporting announcement of the appointment.

Another Year Older and Deeper In Debt2

Turnover for the year to 31 July 2022 is shown as an adjusted figure improving by £15m to £138m but its worth remembering that the adjustment removes discontinued operations.  For reference the adjusted turnover was shown as £194m in the Report to 31 July 2019.  Back in the Report for 2017 the Group turnover was shown as £276.5m which suggests that the closure of partnerships and the pandemic may have halved its size since then3.

To try and put some sense of the changes since then the 2017 Report noted the “Number of INTO partnerships” as 24.  In the most recent report there appear to be 50% holdings in 11 operational ventures plus 51% in INTO Newcastle and 100% of INTO SLU.  The relationship with Hofstra University is not noted in any form in the current Report.

What has continued to mount is the debt owed by joint ventures to INTO University Partnerships.  The year-on-year increase in debt is over £8m with the majority of the change reflecting the longer-term trend of partnerships in the US becoming increasingly indebted.  This reflects the challenges facing US pathways in recent years. 

How Long Can This Go On?4

New faces and the end of the pandemic could lead to a reset and INTO certainly seems in need of it.  The US operation saw the return of David Stremba as SVP of Partnership Development, North America and the UK leadership team was re-jigged last year with a seeming change in focus across Russell Group and non-Russell Group universities in the portfolio.  Perhaps a combination of direct recruitment contracts, in person and in country activity through initiatives like the University Access Centres, and the return of student demand from China will see a change in fortunes.   

There are, however, headwinds.  While the UK has had a boom in international recruitment over the past three years partners like Newcastle University and the University of East Anglia have underperformed the sector.  In the US it seems that Shorelight has been making much more rapid progress on direct recruitment and has retained more pathway partners than INTO.  The public and apparently acrimonious split with the University of South Florida may be unhelpful to INTO in brokering new deals.

Whether there is some merit or enough financial firepower for a merger, sale or takeover with another operator may be one question to answer.  Some form of alliance with a careers/employability focused partner or building/buying a credible online delivery operation might also add some interest to what looks a dated offering.  All things for the new board members to ponder.             

NOTES

There’s a working theme to the sub-titles.

  1. A lyric of hope from “9 to 5” by the wonderful Dolly Parton. The song—and film— were released in 1980 and owe their titles to 9to5, National Association of Working Women,  an organization founded in 1973 with a mission supporting women working for equal pay, power and participation.
  2. Slightly adjusted line (the lyric says “day” not “year”) from 16 Tons written by Merle Travis.  It is based on life in the mines of Muhlenberg County, Kentucky.  Several lines in the lyrics are direct quotes from his brother and father who worked in the mines.
  3. The adjustment of figures is difficult to follow.  Links are given to the source data for those who wish to investigate further and I am always happy to receive and publish an authoritative correction.
  4. From Working In the Coal Mine which was written by Allen Toussaint and a hit for Lee Dorsey in 1966.  Neither had ever been down a coal mine

Image by Arek Socha from Pixabay 

PATHWAYS GREAT CONSOLIDATION?

Last week’s news that Oxford International Education Group (OIEG) is in the hunt for buying Cambridge Education Group (CEG) could be the first step in consolidation for the pathway sector.  It comes after a few torrid years where aspirations for pathway growth in the US foundered and the pandemic wreaked havoc with global student mobility.  Murmurs that QA Higher Education may also be on the block and long-standing speculation that Andrew Colin and/or Leeds Equity might seek options on their investment in INTO make for a potential realignment of interests.

On the face of it a trade sale for CEG has the advantage of reducing recruiter competition in a market where new entrants have been one factor in the growing cost of student acquisition.  It would also make for a group that had some genuine clout with fifteen UK pathway partners1 including a Russell Group name in the University of Southampton.  Both have minor interests in the US and CEG bring European partners and a burgeoning digital business with ten partners listed.

In the UK2 this would make it larger than Navitas (11), Kaplan (11) and INTO (6) and the same size as Study Group (who lost Coventry London in 2022 and where rumours suggest another possible defection in the north of England).  It’s a point where you could see one of those players having a look at QA Higher Education who have seven university partners including four where they offer a pathway but six where they deliver an undergraduate degree programme in partnership with a university.  The restructuring could even extend into consolidation of pathway operators with the aggregator and OPM markets.   

From Strength or Weakness?  

A recent comment on mergers and acquisitions suggested that “you can’t keep a good capitalist down and eventually greed will overcome fear.”  Many investors have cash in hand after a year with little action and there are suggestions CEG is available for between £150m and £200m.  The financial returns of the various elements of CEG and OIEG are not easy to divine from published information but one can either read or deduce a number of things:

Cambridge Education Group

The financials below come from the accounts of Camelot Topco, ultimate parent company of CEG3, for the year ended 31 August 2021.

ONCAMPUS revenue declined in 2021 to £39.6m due to the pandemic but was £54.4m in 2020.  CEG Digital revenue increased to £12.1m in 2021 from £6.2m in 2020 (one would presume partly due to pandemic related online measures).  Underlying EBITDA was £7.8m in 2020 but fell back to £3.2m in 2020 due to the pandemic.  Across the two business there were around 4,000 students enrolled.

Oxford International Education Group

The financials below come from the accounts of Sparrowhawk 2 Limited, the holding company of OIEG4, for the year ended 31 August 2022.  The comparative year on year numbers span the acquisition of the business in early 2021.

Overall turnover increased to £58.8m from £33.4m the previous year.  This includes pathways, a separate English language business, operations in north America, IELTS testing and two businesses in India.  It is possible to deduce that at least £14.5m of the £58.8m is not pathway related but the accounts state that pathway revenue had increased £11m year on year.  The numbers indicate that the business made a small operating loss on the year (£0.9m) but it is stated that this masks an “underlying profit of £2,907k”.  The business is forecast to “generate positive EBITDA” during the financial year to August 2023.  

Without having CEG’s accounts for 2022 it is not possible to know what a comparative performance to August 2022 was but one would anticipate a rebound in pathway business aided by the addition of new partners.  The business is also able to trumpet the addition of Loughborough University, who have been talking with potential pathway operators since at least 2007, as a partner in December 2022.  All in all, it looks as if OIEG would be taking on a larger business with some substantial and complementary assets.   

Caveat Emptor        

CEG is able to tell a strong story on digital developments and a growing portfolio of well ranked partners which might make it a very attractive proposition.  OIEG is an aspirational business which can point to partners that have done very well out of the growth in UK student recruitment with the University of Greenwich being one of the most significant beneficiaries of the growth in the Indian market.  So, what could possibly go wrong…

Anyone looking at the UK government’s turbulent approach to international student recruitment would point to the continuing possibility of changes to visa policy as a Conservative Government prepares the ground for an election in no more than 24 months.  Significant limitations on student family members (other than with PhD students) and constraints on post study work are two of the main ghosts at the feast.  More severe limitations on lower-ranked universities and “poor quality courses” would be particularly damaging to both CEG and OIEG portfolios.

Alongside that is the sense that CEG might see a window of opportunity that means a race to the exit is the most sensible option in a market where several factors could compromise future performance.  Examples include the evident resurgence of Australia as a competitor after several years of weakness, as well as the reality that Canada remains strong and the US seems to be concentrating on visa turnaround times in major growth markets.  All that is before the revitalisation of China as an international student recruiter with eyes on Africa and India, which seems an inevitable consequence of its borders reopening after COVID.

Those who have been involved in mergers and acquisitions will also recognise the substantial risks involved in trying to merge business cultures, operational activities and brands.  For pathway operators, even as they become increasingly involved in direct recruitment, there is the added challenge of a sales team trying to cope with a plethora of university brands in their bag and not doing justice to any of them.  Smart universities will also have the potential for amendments to contracts if ownership changes and could choose to negotiate hard on revised targets and penalties for failure.

What seems likely is that consolidation will come sooner rather than later as some operators and investors head for the exit doors while the UK environment looks acceptable. The possibility of aggregators, online delivery and post study employment options coming into the mix are likely to make for an interesting year. Interesting times.

NOTES

  1. This count includes seven OIEG partners and the eight listed in CEG’s ONCAMPUS brand.
  2. This is likely to be contested territory but I have attempted to review those relationships which are on campus, joint ventures, and have a pathway element. Authoritative corrections are welcome.
  3. The ultimate controlling partner is Bridgepoint Euro IV Fund managed by Bridgepoint Advisers Ltd.  The interest was purchased in April 2013 for a reported £185m.  In July 2019 reports indicated that Bridgepoint had sold the CATS Colleges division of CEG to Bright Scholar for a transaction value of £150m.
  4. The ultimate controlling party is THI Holdings GmbH which acquired a majority stake in March 2021 in a deal which saw OIEG’s schools division sold to Nord Anglia Education.    

Image by Pete Linforth from Pixabay 

Officium….Conflictus

A 2020 Harvard Law School Forum on Corporate Governance claimed that “…the overall state of JV governance is still not good.”   The same Forum offered a piece in 2019 which explicitly discussed the “JV Directors Duty of Loyalty” and begins “Many joint venture board directors find themselves in a perceived state of conflicted interest.”  It’s relevant reading when the court case1 between INTO2 and University of South Florida financing Company (USFFC) shows the Secondary Case3 naming four employees of the University of South Florida (USF) as defendants. 

These individuals were appointed by USSFC as directors on the Joint Venture between USF and INTO University Partners (IUP), with one of them serving for just a single day on the joint-venture Board.  The defendants, Jennifer Condon, Karen Holbrook, Nick Trivunovich, and Ralph Wilcox are collectively referred to in the submissions as the “Former USFFC-Designated Joint Venture Directors.”4. INTO’s claim is that, “As a result of the USF Parties’ threats and failure to perform their contractual obligations, as well as the Former USFFC-Designated Joint Venture Directors’ breaches of their fiduciary duties to the Joint Venture and INTO USF LPLP, Plaintiffs have suffered and continue to suffer financial harm in the tens of millions of dollars.”5.

INTO Claims Against the Individuals as Count V

The INTO claim for “Breach of Fiduciary Duty Against the Former USFFC-Designated Joint Venture Directors.” is Count V of their complaint6.  The assertion is that they, “..breached these duties by continuing to serve on the Joint Venture’s board of directors with knowledge that USFFC and USF intended to and did purport to terminate the USA despite the Former USFFC-Designated Joint Venture Directors’ serious conflicts of interest.”

In the same Count, two of the four are further accused that they “..breached their fiduciary duties by actively advocating for the baseless termination of the USA [University Services Agreement]..” and that “Their advocacy for termination of the USA was motivated by their concern for the advancement of USF, not the Joint Venture or INTO USF LP, and their loyalty to USFFC and USF, whose interests they put before those of the Joint Venture and INTO USF LP.”

There is the further suggestion that, “The Former USFFC-Designated Joint Venture Directors breached their fiduciary duties by resigning as directors and leaving the interests of the Joint Venture and INTO USF LP without proper care.”

This was not the first time the question of conflict of interest had come up but it was an interesting reversal from an earlier accusation by Fell. L. Stubbs, Treasurer of USF and Executive Director of USSFC.  On 13 May 2 he sent a memo alleging that “While INTO has continuously accused the USF FC appointed directors of conflicts that they have taken care to appropriately manage, INTO has not done the same. For instance, Anmar Kawash, an INTO appointed director to INTO USF, continues to represent the stockholder and IUP in the parties’ dispute.”7

Defendant’s Response and Motion to Dismiss Count V

The defendant’s response on 3 November8 was a Motion to Dismiss Count V claiming, “The ultimate issue…is whether the University of South Florida (“USF”) correctly terminated its University Services Agreement (“USA”) with the Company [INTO USF Inc,.  It continued,“But that simple breach of contract case has exploded into an eight-count diatribe against any person or company that provided information to USF or agreed with the termination decision….”  In addition to claiming that the individuals acted in ways that were “contractually agreed” and which they were “entitled to” do the response asserts that “…this lawsuit is the INTO Entities’ way of exacting revenge and forcing anyone who reported to USF about the Company’s financial distress to pay the penalty.”

In seeking the Motion to Dismiss there are claims the action is barred by sovereign immunity, absolute immunity and corporate “primacy of contract” doctrine, as well as failing to show a cause of action.  There is a specific argument that the individual who was a director for one day “did not take part in any of the conduct about which the INTO Entities complain” because the appointment was made after “the SHA was terminated.” 

Request for Production and a Further INTO Response on Count V

On 9 November INTO issued “Requests for Production”9 to each of the four individuals covering the period from January 1, 2019.  The main elements requested are “all documents relating to the lawsuit”, “All documents and communications relating to the February 2022 board meeting”, “All documents and communications relating to Your resignation as a director of the Joint Venture”, and “All Your notes or minutes from any meetings, whether in person or remote, involving You relating to the Joint Venture and/or Plaintiffs”.

On 23 November INTO filed its response10 to the defendants’ Motion to Dismiss of 3 November, claiming “It is difficult to imagine a clearer example of divided loyalties and breach of fiduciary duty than the one laid out in the Amended Complaint.”  The Response lays out its reasons for this claim and makes legal points against the assertions of immunity and other arguments for dismissal.  The argument related to the individual who was a director for one day states that she “..breached her fiduciary duties to the Joint Venture by resigning from her position as Joint Venture director, leaving the Joint Venture without proper care..”

The Defendant’s Reply to INTO’s Response on Count V

To a casual reader, the Reply for the defendants’ on 2 December11 adopts a tone that mixes legal argument with language that a detached observer might consider scornful.  On sovereign immunity they say, in a “gotcha” moment, “Given this law, the INTO Entities pled directly into the sovereign immunity defense.” and conclude, “This end-run on USF’s sovereign immunity is futile.” 

On Primacy Doctrine they suggest, “The INTO Entities confuse substantive and procedural law, as well mutually exclusive remedies.”  On the failure to “state a cause of action” against Jennifer Condon they state, “The INTO Entities’ ineffectual response shows nothing more than their scorched earth policy.”  This looks like a level of rhetoric which one assumes a judge will calmly sift through and ignore while considering the facts of the case.

Breaking Up Is Hard To Do

When Neil Sedaka released the song in 1962 he sang “Think of all that we’ve been through and breaking up is hard to do.”  The current court saga certainly seems a long way from 2010 when IUP and USF began their partnership.  Or even May 2013, when IUP founder Andrew Colin received a Global Leadership Award from the University of South Florida in recognition of his contribution to international education. 

The intervening years may have led to a point where speculation about the “end of the long-term joint venture” model has become a reality.  It may even give other joint venture directors pause for thought about the governance model they work under, the obligations they might have and the legal cover that is offered for disputes.  In this case a moment of truth may come on 25 January 2023 when a hearing is scheduled to hear the motion to dismiss Count V on the grounds of sovereign and absolute immunity12.

NOTES 

This blog reflects on complex legal issues and makes no assertions in support of or against any of the parties involved. References are provided for readers wishing to read more detail. Any authoritative corrections on matters of fact are welcome.

All filing references relate to documentation filed with The Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County, Florida Circuit Civil Division.  Further information about the case including the lawyers representing the parties are included in a previous blog.

  1. In the Consolidated Lead Case CASE NO.: 22-CA-006001, Div. L, USF Financing Corporation (USFFC), a Florida not-for-profit corporation, is the Plaintiff while INTO USF LP, a Delaware limited partnership, and INTO USF, INC., a Florida corporation are the defendants (Filing # 156524107 E-Filed 08/31/2022).
  2. As INTO USF LP and INTO USF, INC., are the listed parties in the cases the term INTO is used to describe them in this blog.
  3. In the Secondary Case INTO USF LP, a Delaware limited liability partnership, and INTO USF, INC., a Florida corporation, are the Plaintiffs, while USF FINANCING CORPORATION, a Florida not-for-profit corporation, and THE BOARD OF TRUSTEES OF THE UNIVERSITY OF SOUTH FLORIDA, Defendants.  The amended complaint (Filing # 157809124 E-Filed 09/20/2022) added the four individuals.
  4. Filing # 157809124 E-Filed 09/20/2022  
  5. Filing # 157809124 E-Filed 09/20/2022
  6. Filing # 157809124 E-Filed 09/20/2022
  7. Filing # 153460265 E-Filed 07/15/2022 Exhibit G
  8. Motion and Incorporated Memorandum of Law to Dismiss Count V of the Amended Complaint Against the Former USF FC-Appointed Directors Filing # 160604060 E-Filed 11/03/2022
  9. Filing # 160982138 E-Filed 11/09/2022
  10. Filing # 161827652 E-Filed 11/23/2022
  11. Filing # 162259450 E-Filed 12/02/2022
  12. Filing # 162395119 E-Filed 12/05/2022

Image by Mohamed Hassan from Pixabay 

INTO THE JAWS OF UNCERTAINTY

Friday December 16 at 1pm doesn’t have the resonance of High Noon but a court filing1 suggests it may be the moment for a Special Set Evidentiary Hearing to determine whether a Receiver will be appointed for INTO USF Inc2 (INTO)3. It is termed, somewhat ominously, a JAWS4 hearing in the Docket Entries for the case but it’s not clear who is “gonna need a bigger boat”.  Churchill may have said that “meeting jaw to jaw is better than war” but in business terms this encounter may defy that maxim.

As always, this blog attempts to inform readers but notes that no opinion is offered on the merits of the case or the assertions by either side. For keen readers of detail, the paperwork in the case is filed with The Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County, Florida Circuit Civil Division and is publicly available. The Consolidated Lead Case is CASE NO.: 22-CA-006001, Div. L, with a secondary case as CASE NO.: 22-CA-006726, Div. L.

These are complex matters and I will be happy to receive authoritative factual corrections and make any necessary amendments.

WHAT’S IT ALL ABOUT?

The Hearing follows a Motion and Incorporated Memorandum of Law from USF Financing Corporation (USFFC), on 3 October 2022, for appointment of a receiver5. The fundamental request is that this is “…to (1) take control of the assets of the Company and (2) release what should be state auxiliary funds only for the purpose of funding the teach-out, together with such other and further relief as this Court deems just and proper.” 

INTO’s response on 24 October6 urged the court to reject the request with the Argument under two main headings – that “the Joint Venture Is Not Engaging in Self-Dealing Or Waste” and that “the USF Parties’ Arguments Are Baseless.”  It also notes “Appointing a receiver is a rare and extraordinary remedy.” Plaza v. Plaza, 78 So. 3d 5, 6(Fla. Dist. Ct. App. 2011).”

USF made a reply to this on 31 October7 noting that “The USF parties seek to protect for the teach-out $7.5 million of payments made by international students and sponsoring foreign governments for academic instruction and student housing provided by USF.”  They assert that, “At no point in their Response do the INTO Entities indicate they will forward those funds to USF to be used for their intended purpose.”

THIS IS ROUND TWO

Last time the parties were in court in relation to the case was on 19 August 2022 when an Evidentiary Hearing considered an Emergency Motion from INTO for a Temporary Injunction to Maintain the Status Quo.  There was “…live testimony by both parties” and the Clerk’s notes8 indicate that John Sykes, Co-founder and Deputy CEO of INTO University Partnerships, Kiki Caruson, Vice President of USF World and Fell L. Stubbs, Treasurer of University of South Florida and Executive Director of the USF Financing Corporation were in court as witnesses.

An order denying the Motion was made on 31 August9 with none of the four key requirements for preliminary injunctive release having been met.  However, it was noted that “..this ruling is not dispositive or determinative of the merits of the main issues in the case.”

THE BIGGER PICTURE

There are over 100 pages of documentation, including original contracts, in the three documents related to appointing a receiver.  The dispute is part of a wider case centering on USFFC seeking a Declaratory Judgement on 21 April 2022 stating it “…provided its notice of termination of the University Services Agreement and the Direct Admit Marketing Services Agreement….. Once USF terminated the University Services Agreement with the Company, this termination automatically terminated the Stockholders Agreement, which now requires the parties to dissolve and wind-up the Company.”10

INTO’s response of 20 September noted that between February and April 2022 they understood that USF were “..exploring the possibility of revising by mutual consent the original terms of the partnership” but that USF then “…improperly sought to terminate their contracts with Plaintiffs and dissolve INTO USF, Inc.”  They also state that they “..have at all times vigorously disputed USFFC and USF’s assertion that the Joint Venture was insolvent. Not only is this conduct in bad faith and in clear breach of the parties’ contracts, but it represents a transparent attempt to wrongfully appropriate the business of a company that was supposed to be its partner and that it knows has substantial value.”11

Apparently, “The parties have engaged in both forms of alternative dispute resolution mechanisms, but were unsuccessful in reaching a resolution of their dispute.”12

On the legal side USSFC are represented by Buchanan Ingersoll and Rooney PC while INTO have Sivyer Barlow Watson & Haughey, P.A., Bush Ross, P.A., and Susman Godfrey L.L.P.  The latter’s website makes the claim that they are “..America’s premier litigation boutique” so the stakes seem high. 

Notes

All filing references relate to documentation filed with The Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County, Florida Circuit Civil Division. 

  1. Filing #159856710, E-Filed 10/24/2022. Jaws Confirmation No. 12J – 349103917354.
  2. INTO USF Inc.,is described in its Marketing and Recruitment Services Agreement with INTO University Partnerships Limited as “offering a range of academic preparatory programs and English language courses to international students which, when successfully completed, enable qualified international students the ability to progress to undergraduate and graduate degree programs at the University (collectively, the “INTO USF Programs”) Filing # 153460265 E-Filed 07/15/2022 Exhibit B
  3. For simplicity the term INTO is used for submissions by defendants, INTO USF LP, a Delaware limited partnership, and INTO USF, INC., a Florida corporation, in the Consolidated Lead Case CASE NO.: 22-CA-006001, Div. L where USF Financing Corporation (USFFC), a Florida not-for-profit corporation, is the Plaintiff (Filing # 156524107 E-Filed 08/31/2022).
  4. JAWS is the acronym for the Judicial Automated Workflow System for the Thirteenth Judicial Circuit System of Florida.
  5. Filing # 158504942, E-Filed 10/03/2022
  6. Filing # 159869006 E-Filed 10/24/2022
  7. Filing # 160306990 E-Filed 10/31/2022
  8. CDOCboa89b3b594b23_1661607751
  9. CDOCbo8ffb49b6e49c_1662035965
  10. Filing # 153460265 E-Filed 07/15/2022
  11. Filing # 157809124 E-Filed 09/20/2022
  12. Filing # 153460265 E-Filed 07/15/2022

    Image by Dmitry Abramov from Pixabay 

    Open Doors or Closing Time for US Pathways?

    Open Doors data for 2021/22 confirmed trends that have already become evident in the UK and are likely to shape the future of global student recruitment for several years.  It also points to some stark realities for pathway operators that may cast a shadow over any hopes for a post-pandemic recovery in the US.  Most starkly, the recovery was marked by the highest ever new postgraduate intake, largely driven by students from India, while new undergraduate enrollment was only just above 2011/12 levels.

    Will China Bounce or Break or Will It Depend Where It’s Dropped?

    One of the biggest questions facing pathway operators in the US is whether enrollment numbers from China have reached a low point and will rebound.  The overall number of degree students from China enrolled in 2021/22 was 232,674 which was 16.7% down on 2017.  Undergraduate enrollments were down 26.3%.

    However, the impact is not the same across all states.  Consideration of the 25 states with more than 10,000 international students in 2017 shows four who increased the overall number of “Foreign Students in the State” – Arizona, Massachusetts, North Carolina and Maryland. The first two made significant percentage increases from India while the latter two also increased the percentage enrolled from China

    By contrast the two states with the largest percentage loss in international students over the five years were Oregon (-42.4%) and Iowa (-34%).  Of the 25 states, they had the highest percentage of students from China and in the case of Oregon the second highest percentage was from Saudi Arabia rather than India in 2017.  The leading universities in each state – Oregon State University, Corvallis and Iowa State University – lost 26.7% and 30% of international students enrollment respectively.    

      *Information from Open Doors Fact Sheets 2017 and 2022.  Numbers relate to “foreign students in the state”. 

    A thoughtfully argued piece in University World News has suggested that a variety of factors could see a significant rebound by Autumn 2025.  This is tempered by factors including the growing strength of other recruiting countries and the developing academic quality of Chinese universities.  Others have suggested that unpredictable geopolitics, the potential for online delivery and universities desire for diversity may be major factors suppressing demand from China. 

    Either way it seems an unpredictable future and not something to bet the house on.  Certainly, US universities wanting to rebuild their numbers are going to have to think long and hard about products, price points, promotion and graduate employability.  It seems possible that as global alternatives increase, recruitment markets change and in-country competition stiffens the role of pathways will come under further scrutiny.    

    Pathways Poser

    Responses by the main pathway operators to changing market dynamics have differed.  A previous blog illustrated Shorelight’s pivot from pathways to direct recruitment options but there has been little sign of such significant movement from its main US competitor, INTO University Partnerships (IUP).  The situation in Oregon, home to key IUP partner Oregon State University (OSU), suggests that the need for action may be growing.   

    OSU provides long term, consistent enrollment reporting though its Office of Institutional Research which gives some weight to this thinking.  Despite the 2021/22 growth reported in the Open Doors data, OSU did not show international postgraduate growth in Fall 2021.  Fall 2022 numbers show another overall decline in international enrollments driven by falling undergraduate numbers and only limited growth in postgraduates.   

    *These figures include all INTO Oregon State University (INTO OSU) pathway enrollments except Academic English

    The impact of declining numbers from China is evident.  Despite recruitment support for direct admits from pathway partners IUP there seems to be limited ability to accelerate enrollment of students from other markets to compensate.  While the number of students coming from India to enrol is showing reasonable growth it is starting from a low base. 

    Overall enrollment has been impacted by a continuing decline in the INTO OSU pathway operation.  Undergraduate pathway enrollments in Fall 2022 were down 80% over five years (and 65% on 2019), while graduate pathway enrollments were down 57% over five years (and 62% since 2019).  Total enrollments for INTO OSU have fallen 72% since 2017.

    A previous review of Fall 2022 preliminary numbers from INTO George Mason University showed that IUP’s pathway operation at that university was struggling to bounce back after the pandemic but there was no information available concerning countries of origin.  INTO OSU data offers country insights and shows that three of the four main countries of origin have seen declines, with China falling from 581 students to 48 over 5 years (92%).  Numbers from India have shown small fluctuations but in Fall 2022 the intake of 16 was the same as in 2017.

    Money Matters

    Alongside declining volumes the INTO OSU debt to IUP increases.  This is, presumably, all well and good if the joint venture can generate enough pathway enrollments or find alternative revenue streams to pay the debt back over time.  However, three of IUP’s US joint ventures have closed in recent years – at Colorado State University, Marshall University and Washington State University – with a fourth, at St Louis University now wholly owned. 

    The joint venture at the University of South Florida is not currently recruiting and is under threat.   Recent court filings have shown that USF Financing Corporation (USFFC) sought a “declaratory judgment that the 2010 stockholders Agreement between USF FC, the Company, and the INTO Defendants is terminated as of April 21, 2022.” The grounds were that the joint venture is “insolvent under both a balance sheet basis and inability to pay debts as they become due, and (b) has demonstrated a material adverse financial position where it could not perform all or a substantial part of its obligations..”.

    *Taken from IUP annual reports up to and including that for the year ended 31 July 2021.  Excludes INTO SLU which is wholly owned, INTO USF which is not currently recruiting and INTO Hofstra which the INTO University Partnerships annual report does not record as a joint venture.

    **The 2021 Financial Statements of Illinois State University (p.50) note that “INTO ISU has an agreement with its two partners, Global and INTO NA, which allows INTO ISU to borrow up to $6,000,000 in operating capital from INTO NA with an interest rate of 6%…. INTO ISU has outstanding borrowings with INTO NA in the amounts of $6,000,000 and accrued interest of $488,392 for the year ended June 30, 2021.”  INTO NA is a wholly owned subsidiary of INTO University Partnership Limited (IUP).

    Reflections and Realities

    Global pathway operators have many creative, flexible and commercially minded individuals but it’s worth remembering Margaret Thatcher’s dictum that “there is no way in which one can buck the market.”  Open Doors provides a picture of 2021/22 but as more universities report on their Fall 2022 enrollments it becomes even clearer that the dynamics have changed.  With all four major recruiting countries having relatively benign government policies it is no time to be clinging to outdated models with 2023 recruitment already starting.

    Notes

    As always the text reflects my understanding of the data. I am happy to receive any alternative thoughts or corrections from authoritative sources.

    Image by Kingrise from Pixabay