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
- 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.
- SRS Reopen Event shown at the Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County Florida Complex Business Litigation Division.
- 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
- Espalier Ventures is 100% owned by Andrew Colin with INTO University Partnerships Limited making up 99% of its turnover.
- 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!
- 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.