Europe needn’t fear higher education investors

by Dr Francois Therin

Information recently surfaced that private equity firms were looking to acquire universities in the UK. This was followed by an article suggesting that legislative changes could mean a British university could be in private hands within six months.

Such news should not be seen as a threat for continental Europe as past experiences have shown that this kind of investment is most of the time far from being of interest to private providers.

If we do not have examples of private equity firms investing in significant operations in higher education in Europe, we do have examples of private providers (mostly from the US) who have bought or taken out shares in higher education institutions.

To mention a few, Career Education Corporation bought a business school in France and another in Monaco. Laureate has one engineering school in France, several business schools in the rest of Europe, and runs online operations for the University of Liverpool from its Amsterdam office.

Even if we will never get a clear answer from these private providers on their profit motive, we can guess that they are expecting at least a 15% return on operating costs. Some of the financials available for Career Education Corporation, for example, show that this is more or less what they get on their European operations.

Most universities, business schools and engineering schools in Europe are either public or, if private, they are not-for-profit.

Purely for-profit providers of a reasonable (enough to make them interesting for investors) size are very rare. They were mostly built 20 to 30 years ago by entrepreneurs who managed to make a decent living out of them. And most of these private institutions, as far as we know, have already been bought by one of the large US players mentioned above.

So the potential number of targets is very small. A few hidden gems may still be available but as they are rare, their price may also be fairly high, making any investment less interesting.

When we look at the not-for-profit private providers, they mostly follow a business model similar to that of public universities: spending is adjusted to the expected amount of revenue. This means that returns are very much lower than the expected 15% and are more likely to be between zero and 6% to 7%. So they are not interesting enough for investors.

We could, of course, argue that investors could try to cut costs, rationalise activities and so forth, to reach the magic 15%. But as these potential targets face very fierce competition to attract the best students – in order to maintain their ranking position, reputation and accreditation – they generally tend to use all the resources available to retain top faculty, fund research and market themselves. So any significant gain could have important consequences for their long-term revenues.

It is not surprising, therefore, that so far the large US private providers have mostly invested in second or third-tier institutions with little or no international reputation.

These institutions do not attract the best students, but those who just want a degree, so they are not as sensitive to the same criteria as more able students. Thus, these schools or universities can invest less in research and facilities, use more part-time faculty and so forth, which allows them to maintain a better financial profile.

Finally, companies, alumni and governments could be reluctant to give grants or money to an institution knowing that a part of it will go to private shareholders. This is not really part of the European culture where education is still seen as a common good, if not a public one.

Of course, we may in the future see a European institution being bought out and successfully revamped so that it is both highly ranked and very profitable. But in my opinion, the current market conditions do not suggest this will happen any time soon.

This article was previously published in World University News (20 November 2011) at

Dr. Francois Therin is the Dean of the School of Business at Curtin Sarawak. His teaching and research interests cover strategic management, technology and innovation management, and high-tech innovation for small firms and technoentrepreneurship. His views on higher education have been published in The Guardian online edition and for University World News. Dr. Therin can be contacted at +6 085-443 939 ext. 3841 or by e-mail to He can also be followed on Twitter @ftherin.