In the Middle East, we entered a new phase of maturity in the schools market a couple of years ago. Supply of private schools increased in many countries and demand softened for some market segments. That brought in an Age of Competition which is great for consumers and for quality.
It also brought a new Age of Acquisition. Now, acquisitions have always been an attractive proposition for an investor wanting to get into the schools market but it used to be hard to find targets. And hard to get sensible prices.
That has been changing. And with large school chains like Cognita, Nord Anglia and GEMS attracting high valuations, it looks like a great time to take on the Age of Acquisition. It’s both a faster route to scale and there is going to be a better eco-system of school investors that allows people to sell ‘up’ the value chain at improving multiples.
Only, there is a caveat. Call it, ‘Caveat Emptor’ or ‘buyer beware’.
We have seen enough acquisitions in the last five years – not a flood but enough to learn something – and the lesson over and over again is that an Acquisition is Hard!
We should have known this, of course. Mergers and Acquisitions are always the toughest projects to manage once a Business Development Team has made the deal and left the field. There are clashes of people, cultures, expectations, ambitions and careers that follow. The investor will need a Value Creation Plan that can translate the opportunity into a justification for that price the BD team got. And the investor needs a 100 Day Plan to start the big financial, cultural and organisation changes that will be required.
Think about Microsoft and the number of acquisitions they have made. There is a long trail of companies whose value disappeared quickly because that after-sale ‘integration’ never worked.
A great Acquisition starts with due diligence. It carries that analysis into the deal phase. And it carries the ramifications of both through into the integration phase.
When you work with schools, you quickly learn that – from the very start – there has to be a special due diligence that gets to the heart of the real education issues that count: the school’s Location, precise Proposition and its closest Competition, the quality of its Intake (how often have I seen in-expert investors ignore that question?), the strength of its Educational Assets (often much weaker than people expect, especially when a school’s strength lies mostly in the teaching body that might not stay after the sale), and the ‘Manageability’ of the asset (some schools have been so badly run that there needs to be a host of healing before you can get it running right).
Then there are the standard due diligence sections for the financial and legal risk which, frankly, work 95 per cent the same as for other sector acquisitions. It is the Educational Due Diligence that is special. And if someone is just offering you a ‘quality audit’, be very careful because it is unlikely to be focused enough on the real questions that count.
We have worked on a few DD exercises now so we have found new ways to assess a school’s Readiness for sale-and-turn-around. We are now working on the special Planning and ‘Integration’ strategies that seem to fit the sector, after the deal is done.
I predict this area of work is going to become a major focus for debate in the next two years. Then we might have some market models that are truly fit-for-purpose in our sector. Let’s live and learn this together!
