Tag: university pathways

A Study Of A Stumble

It is difficult to understand why publications claiming an international audience continue to quote the headline numbers from the annual Open Doors release.  The inclusion of OPT numbers would only be relevant in comparison to, say, the UK if the number of students on post-study work visas was added.  The real headline is that US enrollment of undergraduate and postgraduate students in 2022/23 was up 12.4% year on year but still nearly 33,000 lower than 2017/18.

At a more granular level, the new international undergraduate intake of 95,681 appears to be well below the 2017/18 comparator of 108,539 and so the reduced accumulator factor of undergraduates will slow overall growth in future years.  On the global competitiveness scale it also, for example, looks well below the UK’s 2021/22 international intake of “first year, all undergraduate” recorded by HESA.  While the counting of the numbers is always a fine art and some differences may apply, it seems difficult to agree that the US enrollment of international students is “soaring” against the main competitors but we will have a better direct comparator when the UK’s data for 2022/23 comes out early next year.

The Fall 2023 Snapshot on International Student Enrollment doesn’t seem to give real cause for breaking out the champagne.  The 8% headline figure shown includes both non-degree and OPT students which leaves the undergraduate and graduate groups growing by 3% and 7% respectively.  If those percentages turn out to be accurate we can expect next year’s Open Doors to show an aggregated total growth for UG and Masters of about 5.3% year on year to 2022/23 and still at a total lower than 2018/19.

Study Group Stumble

The Open Doors release comes as we continue to see fallout in the pathway sectors in the US with the recent news that Study Group’s relationship with Baylor University has come to an end.  The winding down of Study Group’s US portfolio over several years with what looks like the haphazard or, more kindly, opportunistic addition of new partners1 may also indicate a strategic vacuum as the organization comes under pressure to perform.  It’s longest-term partner appears to be James Madison University (JMU) which came on board in 2009 but recent signs there are not encouraging.

Notes from the JMU Provost’s Committee on International Student Recruitment suggest that the relationship may not be producing the results required and that Study Group’s recruitment power may be under question.  We learn in the 2022-2023 End-of-Year Report from May 2023 that JMU had sought other support and contracted, in 2021/22 with EduCo to “increase direct admit students”. The Report also noted, ominously, that “we see no productivity from EduCo”.  At the time of writing JMU does not appear on the EduCo list of “highly collaborative working partnerships with universities”.

A procurement process was in place to appoint University Study to support international recruitment.  This would appear to have been successful as JMU does appear, alongside around 200 other US universities and colleges, on the University Study list of study destinations.  It may be a little early for them to have had an impact on the international student enrollment presented below.

Mind Your Language

Another action noted in the JMU Report is the introduction of an Intensive English Program (IEP) through Study Group requiring “…Federal permission in 2021 to modify our I-17..”.2  The resulting online and inperson IEP was offered for the first time in Summer 2022 but the report notes, “No students participated in summer 2022 and it looks like no students will participate in summer 2023.”  Perhaps interestingly the May 2022 Report of the group had indicated “we think because there are lower-cost options, e.g., DuoLingo, for students needing to enhance language proficiency.” 

Discussion to explore international online programs with Study Group had been put on hold. The overall tone looks less than encouraging and the suggestion that students might be finding alternatives to intensive English programs is worth considering as an aside. The Open Doors Report on Intensive English Programs in the US suggests that student weeks rebounded a little in 2022 but that average weeks per student fell to historic lows of 10.4 compared to 13.8 in 2020 and 15 in 2015. There seems limited opportunity in that market.

The Numbers Count But So Does The Mix

Three graphs from JMU capture the shifting winds of international recruitment in the US.  Since 2015 total US non-resident students have fallen by 334 students (56.3%).    

Source: JMU Planning, Analytics & Institutional Research

Graduate student numbers have grown in successive years with a rise of 126.7% on a relatively modest base of 45 to reach 102.

 Source: JMU Planning, Analytics & Institutional Research

More painful is the decline in international undergraduate students by 71.4% to 167 from a high of 548.  The proposed undergraduate tuition, insurance and student services fee for 2024/25 is $35,600 per year which implies a loss of over $13m in yearly revenue compared to 2015 intake volumes.  More troubling is that the recent trend is still downwards despite suggestions of increasing applications in the Committee Reports.

 Source: JMU Planning, Analytics & Institutional Research

Who’s That Knocking At The Door?

It does look as if the recruitment environment for the US has irrevocably changed with the shift in international student recruitment markets. Over and above that the revitalization of Australia, the uncertainty (but continuing lure for now of guaranteed post study work) in the UK and Canada’s bait (however tenuous) of citizenship have made major competitor destinations even more accessible and attractive. Adding into the picture the global desire of countries from Germany and France to South Korea and Japan to increase their recruitment and retention of the international student market and it would take a brave individual to suggest the attraction of the US is wholly secure.

NOTES

  1. Study Group ended relationships with universities/colleges Merrimack, Roosevelt, Widener, Vermont, City College NY, Oglethorpe, Lynne and now Baylor between 2019 and 2023. They gained De Paul and Hartford as CEG closed its US operations in 2019 and added Florida Atlantic University (as a direct recruitment partner) in 2021. At the time of writing they appear to have four direct recruitment partners and three pathway partners in the US.
  2. The I-17 is the petition (an application) filed with the DHS that, when approved, allows the enrollment of non immigrant students (with gratitude to Thomas P. FitzGibbon III for correcting my earlier definition).

Image by Clker-Free-Vector-Images from Pixabay

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

Oh, What A Beautiful Morning

The sun rises on a new week and there’s a fresh batch of news from INTO University Partnerships including overdue accounts being filed, a direct recruitment partner announced and what looks like a departure at Executive Team level.

Territory folks should stick together2

The INTO University of East Anglia LLP Annual Report for the year ended July 2022 arrived with Companies House about a month overdue.  At first glance there seems little reason for the delay and the average student numbers were only slightly down on the year before.  A little deeper digging shows a breaching of “certain covenants” on the CLBILS loan and a number of restatements of prior year financials.

The restatements have taken the prior year (to July 2021) Operating Loss down from £4.6m to £1.8m with the bulk of the difference being a reduction in Administration Expenses of £2.6m.  The notes indicate that this reflected a decision “..that amounts payable to members for contractual services such as marketing should be included within Members’ remuneration charged as an expense..”.  A similar change was made in restatements of 2021 at INTO Newcastle and INTO Stirling but not, as far as I can see, at INTO City, INTO Queen’s or INTO Exeter. 

The COVID-related CLBILS loan is for £7m with HSBC and requires payment of £1m in November 2023 and the final balance to be paid by December 2023.  The Annual Report notes that this is “within the cash flow projections”, with both partners signing a letter of support to enable the LLP to continue to fund its liabilities as they fall due.   The University of East Anglia, which has had its own financial troubles in recent years, has not posted any Council minutes thus far in the 2022/23 academic year so it’s difficult to know if there are any further insights to be gained from its governing body.

This all means that INTO UEA ended up right in the middle of the pack for 2021/22 recruitment at INTO’s UK Centers but still at around half of its pre-pandemic enrollments.  There’s quite a lot riding on the Autumn 2023 intake with another mouth to feed at the newly formed INTO Lancaster Limited.  Just as a small rider on that point it seems as if this entity has been incorporated as a wholly owned INTO entity so it remains to be seen if it another co-owned joint venture.    

Where the wind comes sweepin’ down the plain3

Back in the USA, INTO has just announced a new partnership for direct recruitment with the University of Oklahoma.  This is the second agreement in the US in 2023 following the partnership with Montclair State University announced in July.  Before that, the most recent partnership was with University of Massachusetts Amherst to recruit to 17 master’s degrees, back in September 2022.

Perhaps the May 2023 publication of claims that there was 52% growth in applications for INTO Center-supported programs and 201% growth in direct entry applications has stimulated interest.  Whether this has translated into equal or similar growth in enrollment should become clearer as partner universities publish their data for Fall 2023. In competition terms, the three additional partners are a limited response to Shorelight’s growing higher education smorgasbord of 65 universities offering undergraduate courses and 39 offering masters courses (excluding American Collegiate and non-US campuses).

The court case between INTO and the University of South Florida continues to move along.  Factors include a Hearing on 10 October 2023, to consider “University of South Florida’s Motion to Dismiss INTO University Partnerships Limited’s Supplemental Pleading”4, INTO’s voluntary dismissal of “..Counts XI and XIV of the Supplemental Pleading to the Second Amended Complaint”5, and an appeal by INTO to the Second District Court of Appeal.6

INTO appears to have refreshed its legal team for the Appeal with three lawyers from Susman Godfrey joining INTO’s roster as “foreign”7 attorneys.  Perhaps it is indicative of the stakes, as Susman Godfrey has been named Vault’s #1 litigation boutique in America every year since the award’s inception in 2011.  All of those developments come ahead of a mediation event led by Joseph H. Varner, III, scheduled for 29 September8.

Many a new day9

All this is happening as the INTO Executive Team continues to slim down.  Chief Product Officer Namrata Sarmah who joined in January 2022 is the latest face to disappear from the company’s website leaving a team of seven heading up the organization.  Other developments at INTO have been reported in recent blogs and it does look as if the company is tightening belts and battening down hatches while continuing to invest in University Access Centres and await developments, including Manchester Metropolitan University’s tender for an embedded international student centre.

NOTES

Impossible to resist an Oklahoma theme to the sub-headings.  The “Sooner State” boasts the American Bison as its state animal and the Oklahoma Rose as its flower but the words all belong to songs from the first Rodgers and Hammerstein musical Oklahoma! which premiered in 1943.

  1. Oh, What A Beautiful Mornin’ is the first song after the overture
  2. “Territory folks should stick together” is a line from Farmer and the Cowman
  3. “When the wind comes sweeping down the plain” is taken from the title song, Oklahoma.  For reasons I cannot explain the musical has an exclamation mark and the title song does not!  In 1953 the state legislature chose it as the state song.
  4. Filing # 181397864 E-Filed 09/08/2023 12:06:23 PM
  5. Filing # 180352287 E-Filed 08/23/2023 02:46:41 PM
  6. Filing # 179426524 E-Filed 08/11/2023 08:31:57 AM
  7. Florida Supreme Court RULE 2.510.FOREIGN ATTORNEYS (a) Eligibility. Upon filing a verified motion with the court, an attorney who is an active member in good standing of the bar of another state and currently eligible to practice law in a state other than Florida may be permitted to appear in particular cases in a Florida court upon such conditions as the court may deem appropriate, provided that a member of The Florida Bar in good standing is associated as an attorney of record.
  8. Filing # 179194479 E-Filed 08/08/2023 03:23:11 PM
  9. Many A New Day is a song title from the musical.  Some describe it as an anthem of female indepence.

Image by Tom from Pixabay

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 

Fade Away or Speculate

With businesses being sold, some chances of consolidation and some new information being available it seems a good moment to have a look at the fortunes of the major pathway businesses.  There is also the chance to speculate on how the future might look for some of them.  It’s all by way of a contribution to the thinking in the higher education sector and the author, as always, is happy to have authoritative responses that bring clarity, correction or corroboration. 

Shorelight

As reported in July 2022, Shorelight seems to be all in on developing an aggregator-style approach to direct recruitment partnerships.  It looks as if another flagship Pathway partnership has been lost with the University of Mississippi no longer featuring on the website at all.  The partnership was launched in September 2018 with Shorelight CEO, Tom Dretler, saying “Our programs would not be thriving as they are today without our partnerships with top-tier universities like Ole Miss that provide international students with access to high-demand degree programs.”  Maybe they’ll miss Ole Miss…

It’s difficult to say with certainty how well the direct recruitment business is doing or how financially rewarding it is.  An investment-oriented perspective comes from Huron Consulting Group who took a $27.9m stake in Shorelight during 2014 and 2015, which rose to $40.9m in 2020.  The original maturity date for the early investment was 2020 which was pushed out to 2024 when the additional investment was made. 

The Huron Consulting Group Inc. annual report for the year ending December 2022 shows that the maturity date has been pushed out to 2027 which suggest they are not expecting it to be repaid any time soon.  Other news from the filing was that the “fair value” of the holding was reduced year on year from $65.9m to $57.6m.  Tracking the percentage difference between the investment holding and the “fair value” suggests that after a peak in 2018 it’s been pretty much downhill ever since.

INTO University Partnerships

It’s difficult to know where to start with INTO but there is a sense of something in the air.  The public spat with the University of South Florida1 appears to have seen the legal arguments reopened2 with a continuing pursuit of individuals from the University for Breach of Fiduciary Duty3.  More recently the company’s first ever partner, the University of East Anglia in the UK, has seen its vice-chancellor resign and a suggestion that the joint venture won’t be returning profits for distribution until 2029/30.

A single outpost in Australia seems bound to come under pressure from the super-dominance of Navitas after their purchase of Study Group’s interests in Australia and New Zealand.  Study Group’s retrenchment and the potential for a strong competitor emerging if Oxford International Education Group succeeds in a bid for Cambridge Education Group could bring increased pressure on the pathway business in the UK.  There seems to have been no progress in new business development in the US and the partners there show little sign of a post-pandemic boom.

All this comes after an upweighting of the INTO Group Board with two senior directors in Annalisa Gigante and Tamsin Todd and the addition of Nick Adlam whose LinkedIn profile indicates he also works for Andrew Colin’s Espalier Ventures Limited4.  It is not uncommon for companies to strengthen their board before looking for new investment or possibly to secure a public listing of some sort.  Perhaps the Alternative Investment Market, once described as a ‘casino’ by Roel Campos of the US Securities and Exchange Commission is a route.  

It’s pure speculation (no pun intended) but an IPO for a part share of the business could offer Leeds Equity an exit while bringing some new cash for INTO to revitalise its business.  It’s the sort of audacious move that might appeal to the company’s lead shareholder.  AIM also seems to offer the flexibility on governance and regulation as well as the access to capital that might be appealing.5         

Study Group

Amid all the talk of it being “consistent with the strategies of both companies” it was difficult not to believe that Study Group’s sale of its Australia and New Zealand operations to Navitas was that of a company in needs of cash.  We know from Study Group’s 2021 annual report that covenants on its term loan debt were set aside until 2024 and that Ardian provided a capital injection of £40m in February 2022 on top of an investment of £17m in February 2021.  Adjusted EBITDA of £14.4m was down from £25m year on year.

All that is on top of the loss of Lancaster University which comes just a few years after Leicester University jumped ship to Navitas back in 2019 and suggestions that CEG has been more successful when competing for high ranked university partners in recent years.  The signing of Teesside University in the UK in 2021 was a bright spot but the logic of picking up a direct recruitment partnership with Florida Atlantic University, which split with Navitas in 2019, seems strange given recent history in the US. The business in the Netherlands has also been closed as a result of “changes in international student recruitment regulations”.

Insendi is sometimes touted as the brightest star in the Study Group playbook and of 54 university partners on the company website at least 21 are with the online platform only.  There is no doubt that it has had some decent names with elements of Imperial College and Johns Hopkins on the roster.  But given the ongoing pressures on OPMs and reports of a “rocky time” in the sector the future seems less than certain.

CEG, QA Higher Education and Oxford International Education Group

The “for sale” sign has gone up around CEG and there were suggestions in 2022 that QA Higher Education might also be up for grabs.  It has been flagged that Oxford International Education Group may well be in the hunt and winning CEG would take them to 13 pathways in the UK but a further prize would be the ten online CEG partners. While CEG has been successful in securing new university partners in recent years there have been suggestions that the commercial terms require very strong recruitment to be sustainable, so any deterioration in UK visa conditions could make life difficult.6 

News around QA Higher Education has been more muted and the recent appointment of a new COO, Kit Tse, who held a similar role at Oxford International Education Group, might suggest that they are in it for the longer haul.  The real question, if so, might be whether there is scope for significant future growth in the UK when universities without commercial pathway partners are finding recruitment fairly straightforward.

Kaplan

The good ship Kaplan seems to sail steadily on its way while others roll, pitch and yaw in choppy seas.  The Annual Report and Financial Statements suggest a relatively untroubled (or at least well managed) COVID period with revenue rising from £116.5 in 2019 to £133m in 2021 and profit going from £7.2m to £12m.  It’s a solid portfolio with something for everyone but there may be a moment in a later blog to have a look at each of the underlying pathways to see who may not be doing so well.

Summary

The scope for consolidation in the sector seems to be clear but the froth and excitement created by record-breaking enrollments in the UK and a bounce-back in the US could also tempt unwary investors to enter the market.  They may want to cast their minds back to the period in the early 2010s when over a billion dollars was invested in pathway on the back of a belief that the US was the new El Dorado.  Parthenon Group’s statement that, “We anticipate that growth will be constrained only by the pace at which private providers can develop the market” did not age well.

Global competition continues to increase, source markets continue to evolve and the uncertainties of Government policy continue to be an existential threat to any expansion ambitions.  Anyone who has brought two businesses together will also tell you that for every synergy there is a clash of ego and culture while for every opportunity there is a bedevilling and unforeseen challenge.  It all makes for a moment when operators probably have to choose to step back and fade away or show the appetite for risk and speculation.     

NOTES

  1. This has been extensively covered in previous blogs (starting August 2022) with the lead case being closed in January 2023.  Court Filings indicate it was reopened on 16 February 2023.  A future blog will look at the circumstances and any continuing action.
  2. SRS Reopen Event shown at the Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County Florida Complex Business Litigation Division. 
  3. Filing # 167652717 E-Filed 02/27/2023 07:53:06 PM in the Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County Florida Complex Business Litigation Division
  4. Espalier Ventures is 100% owned by Andrew Colin with INTO University Partnerships Limited making up 99% of its turnover.
  5. It is only fair to say that in 2015 Marcus Stuttard, head of AIM, reflected that, “If AIM was just a casino it wouldn’t have lasted 20 years.”  The obvious riposte might have been that the oldest licensed casino in Nevada turned 90 in 2021 because there will always be gamblers!
  6. This is a summary of discussions with third-parties and there is no direct evidence that terms are more onerous than some others in the sector. The general point is that universities are more experienced in understanding pathways and are likely to be more demanding given the number of pathway options available.

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 

A Civil Action

In the film A Civil Action, Jan Schlichtmann says, “The whole idea of lawsuits is to settle…”.1  There is no settlement yet but the court case between2 the University of South Florida (USF) and INTO University Partnerships (INTO) has been closed and further dispute resolution is planned.  USF has dropped the case with the claim it has achieved the outcome it was seeking from its initial action.   

Its Notice of Voluntary Dismissal3 on 3 January 2023 says that at the receivership hearing on 16 December 2022, the “evidence submitted by the parties proved Defendants, INTO USF LP and INTO USF, Inc., are taking the actions that the Financing Corporation’s declaratory judgment lawsuit sought (i.e., acknowledging the termination of the Stockholder agreement, gathering and protecting the Joint Venture assets, budgeting to fund the teach-out, and winding-up the joint venture).”  In the transcript of the hearing the judge, The Honorable Darren D. Farfante, made broadly the same points while declining USF’s motion to appoint a receiver4.

It seems likely that further discussions between the parties will be conducted in private but after two previous failures there remains the possibility that these will be unproductive.  Most importantly for some observers is that students, including a group arriving in Spring 2023, are being taught out.  The transcript also tells us that the joint venture board has hired Berger Singerman, “to provide the joint venture with advice regarding the operation of the business during a wind-down, to provide advice regarding corporate governance matters and fiduciary duties.”

Presuming that wind-down results in the eventual closure of the joint venture it will leave INTO with six pathway joint ventures in the US from the eleven that have been started since 2008.5   

Joint Venture PartnerOpened/AnnouncedJoint Venture Closed6
Oregon State University2008 
University of South Florida20092022
Colorado State University20122021
Marshall University20122020
Drew University2015 
George Mason University2014 
St Louis University20152021 (became 100% INTO owned
University of Alabama – Birmingham2015 
Washington State University20172022
Suffolk University2017 
Illinois State University2018 

Last Orders7

While the case regarding the teach out and wind down of the joint venture has closed the flurry of claims and counter-claims suggests there is still plenty to be resolved.  In this respect there are some helpful insights based on how the case might have developed according to a Joint Case Management Report filed on 6 December 20228.  The document summarizes the dispute and then goes on to outline key areas of activity ahead of being ready for a trial in February 2024 if the case had gone ahead.

The process includes witnesses to be deposed (up to 30 fact witnesses and four expert witnesses) and “an alternative dispute resolution” by the end of second quarter 2023.  Other key dates in 2023 include selecting a mediator by 1 April, deadline to identify experts by 7 July, and expert discovery closure by 6 October.  The expert testimony focused on the financial status of the joint venture, including its solvency, on 21 April 2022, and “alleged damages to the INTO parties.”

A recent article in Business Law Today made the point that the “median duration of a joint venture is ten years” and suggested that “all joint ventures end—so plan for it.”  The trajectory of traditional pathways in the US is uncertain and this may not be the last closure, so universities considering joint ventures as a way forward may want to pay close attention.  Another data point could be the reported settlement resolution with a total value of “around $6.4m” passed by Washington State University Board of Regents in July 2022 after the university’s relationship with INTO changed. 

NOTES

This blog recognizes the complexity of the case and is not intended to reflect any view on the merits of either plaintiffs or defendants.  References for filings are given in order that readers can seek further insight if they wish.  Any amendments on matters of fact are welcome from authoritative sources.   

  1. The film is based on a 1995 book which tells the story of a real court case about environmental   pollution in Massachusetts in the 1980s.
  2. 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.  The Consolidated Lead Case is 22-CA-006001, Div. L.  Filing numbers below relate to this case.
  3. Filing # 163938884 E-Filed 01/03/2023
  4. Filing # 163938229 E-Filed 01/03/2023
  5. Hofstra University is omitted – there is no listing in the INTO University Partnership report and accounts indicating it is a joint venture.  All other entries in the grid are taken from publicly available information or observation of websites at the time of launch/closure.
  6. Closures are rarely the subject of public announcements.  Any authoritative amendments to these dates are welcome.  In several cases the relationship has changed to become a direct recruitment rather than joint venture pathway arrangement.
  7. Last Orders is a 1996 Booker Prize-winning novel by British writer Graham Swift.  Its title relates to the Last Will and Testament of Jack Dodds and the instructions therein, but also to “last   orders” the common call in the UK for final orders of drink before a public house closes.
  8. Filing # 162471158 E-Filed 12/06/2022

Image by Chris Sansbury from Pixabay