Connecting an Australian private equity buyout to Swansea University

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Earlier this year, a consortium of buyers took an Australian company private in a multi-billion-dollar deal. The move wasn’t a play on commodities, real estate or any other of the other lines of business you might associate with the country's economy.

Instead, it was all about education.

Navitas, which was founded in Perth in 1994, was bought for $1.5bn USD by a consortium which included private equity firm BGH, Australiansuper, the country’s largest pension fund, and Rod Jones, its former chief executive.

Its business model relies on the huge rise in international students looking to study in English-speaking countries. Navitas is part of a little-understood network of companies and agents that influence where these students end up — and which university receives the lucrative fees they are willing to pay for a Western education.

Navitas had an annual turnover of $930m in 2018, and has 45 partnerships with universities around the world, which provide more than half its revenues. For an insight into international student recruitment, it's worth honing in on its relationship with Swansea University in Wales, which has embarked on an ambitious expansion plan over recent years.

The partnership between the two institutions goes back to 2008. It was relaunched, in early 2018, as The College, part of a new joint venture split between the parties, which acts as a kind of incubator for prospective international students.

The College offers such students pre-degree courses, the idea being that they then go on to study at Swansea itself. In a press release last year announcing the enhanced partnership, Swansea said the new joint venture was set to “boost the University’s recruitment of international students by providing increased options for direct pathways to a Swansea University degree course”.

In the Navitas takeover documents, the pathway model is explained in more detail:

The pathway program model provides pre- and first-year university courses to international students who do not qualify for direct entry to partner universities due to either language or academic record. Some Australian and UK colleges also admit domestic students who do not gain direct entry to Navitas’ partner universities. On completion of the Navitas’ program, students become eligible for direct entry into second and third year programs at partner universities, or Masters level programs for postgraduate students.

Across the whole of Navitas' business, 94 per cent of students transition from such courses to partner universities. The takeover documents state that “a strength of Navitas is its relationships with a large network of recruitment partners who provide face-to-face advice to prospective students in their home countries on their study options”.

Fees at The College, Swansea are currently £10,500 for one semester. Three semesters in Engineering cost just under £20,000. These fees are paid to the joint venture, but the students who graduate then become sources of revenue for the university itself.

It is unclear exactly how many students have transitioned from The College. According to Swansea University's financial reports, fees from international students have risen sharply over recent years.

Earlier statements do not have full breakdowns of fee income from international students, but in 2014, it increased 14 per cent. In 2015, growth accelerated to 26 per cent, adding £6.3m, which Swansea said “reflected the additional students recruited”.

By 2017, Swansea was generating £36m of fees from international students, compared to £105m from those in the EU and domestically.

Like many other universities across the UK, Swansea is undergoing a major development project, transforming the site of a former oil refinery into a new campus.

Navitas also leases an accommodation building on the new campus via a subsidiary, which it can in turn rent out to students. The Rod Jones complex, which uses the same name as the company’s former chief executive, has over 400 en suite bedrooms.

Other business are involved in the increasingly valuable supply chain for international students. The following graph, from the Navitas takeover documents, captures the scale of the commercial opportunity which Australian institutions have flocked to participate in.

The company made pre-tax profits in 2016 and 2017, but losses last year, when it was hit by reduced enrolments in the US. The takeover documents point to "highly restrictive immigration policies" in the US.

In a section addressing its outlook, however, those documents argue that the “underlying fundamentals of the global higher education industry remain supportive”, citing vast shifts in emerging market societies:

Demographic trends in Navitas’ traditional recruitment strongholds in China, India and South East Asian countries continue to favour growth in international education as these economies continue to experience middle-income growth, which stimulates demand for international education

These trends are not just important for Navitas, but also for the universities around the world with whom it has partnered — and the local economies that increasingly depend on their particular industry, and its exports.

Related links:
The financing of student accommodation — FT Alphaville

  1. A Plymouth student property proposition
  2. Educational exports: the story so far
  3. How Lloyds got burnt by a for-profit education deal
  4. A casualty in the education marketplace
  5. How a £100m student accommodation scheme went wrong
  6. Oxford & Legal & General, the real estate play
  7. Alpha Plus is still losing money
  8. Students as a commodity, Sino-US trade war edition
  9. What the bond market thinks about the prospect of a university crisis
  10. How the forces of finance fund MBAs
  11. Introducing the shadow education sector
  12. Why US investors are betting on European student accommodation
  13. The Alpha Plus pension problem
  14. The rise of educational forgery
  15. For sale: one luxury Georgian townhouse
  16. Canada's educational exposure to China
  17. University graduates and the means of financial production
  18. A business model fit to educate royalty
  19. American education and the rise of philanthropic capital
  20. The financial plumbing of university education
  21. Bailing out the universities
  22. The temptations of student real estate
  23. The Egyptian campus that wasn't
  24. The real student politics
  25. Cambridge University’s £1bn bet on housing
  26. University accommodation deals: it's a wrap
  27. Saudi Arabia vs. Canada, the education angle
  28. When is a loss not a loss?
  29. Taking education into account
  30. On the genealogy of moral hazard
  31. Student flows with Chinese characteristics
  32. The great balance sheet shift of British universities
  33. Spare a thought for the music halls
  34. Universities and the allure of capital markets
  35. The strange economics of the university strikes
  36. Higher education and the new doctrine of vocation
  37. The financing of student accommodation
  38. The many problems with a market for higher education
  39. The questionable credit-worthiness of student loans
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