Evidence from a leading investment company suggests that the first quarter of 2016 started strongly for the higher education sector. We believe that it will continue to be one of the star performing sectors for corporate acquirers and private equity investors for the foreseeable future.
The attractiveness of the sector is clearly driven by the fact that there is limited supply, it largely remains immune from economic downturn and the international demand for the UK's gold standard education is unabated. Further evidence suggests that demand for certain courses such as those aimed at heightened security, financial regulation, aviation and compliance will further accelerate the sector.
We act for equity providers and universities that are looking to invest in all areas of the educator sector and have supported them by assisting in the creation of products and structures which use tax-efficient legislation to develop infrastructure on a range of assets within the education sector.
This funding works well for universities that are looking to construct an income-deriving asset, such as leisure, restaurants and bars together with student accommodation.
The key benefits for this type of funding are that:
- The significant element of the payment will be deferred for up to four years, meaning that the university has a grace period in which to get the facility up to a profit-making business prior to being required to make any payment.
- There is a huge appetite for this kind of investment from investors and so the funds can be raised relatively quickly.
- The same levels of due diligence and cumbersome credit committee approvals are not required.
- Compared with traditional debt finance, there is often minimal contribution needed from the university.
- Security will be taken over the assets of the SPV, but this does not prevent the university from getting additional funding which can take priority over the private equity funds. So for instance, the university can utilise debt finance to buy the land on which the project is to be built.