International expansion through external investment – Five key considerations to maximise value
In previous issues of this newsletter we have considered how an education institution (be that a school, university or tertiary or vocational college) can expand their brand and footprint internationally, looking at such considerations as what an institution needs to do with its constitution and corporate structure in its home jurisdiction and the investment structures available to it when exploring international deals. This article builds on that and explores the five key considerations an institution (or its chosen investor or international partner) should consider to ensure a successful international education project and maximise value.
1. Pre-Investment alignment
One of the biggest drivers of value in an education deal comes from a healthy, transparent and aligned relationship between the institution and its international investor or partner. This cannot be overstated enough. Selecting the right partner, taking time to understand them and their reasons for investing, and spending time explaining the ethos of your own institution and your reasons for expansion are key. Time and effort spent at the early stages of discussions and how the deal will be structured, how the local campus will operate and be managed, the oversight required by the institution and the roles and responsibilities of each party will help ensure interests and expectations are aligned and will flush out any potential areas of disagreement or mismatch in expectation.
It is critical for both parties to understand the others objectives and drivers and ensure they are balanced with their own objectives and drivers. Understanding and identifying that, ensuring the relevant legal agreements and governance structures are in place and there are robust processes to effectively deal with any points of friction that may arise, will help the smooth operation of the international campus going forward.
2. Protection of intellectual property
As part of any international education project, whether involving an education institution and an investor developing a new education project, or an investor acquiring an existing education institution or business, protecting and maximising the brand and other valuable intellectual property assets is a key driver of value.
Intellectual property rights will include the name and logo of the institution, the curriculum or courses, teaching materials and uniform. There may also be intellectual property rights which exist in educational software systems and platforms. If the institution is a higher education institution it may also include the research and development the institution undertakes. Some of these assets can be protected through intellectual property rights such as trade marks, copyright, registered design rights, and patents.
Given that the use of the name and logo of the education institution will be core to any project, it is crucial to ensure that clearance searches are conducted to ensure that the name is cleared for use and registration, and if so, that adequate trade mark protection is secured in advance of signing any agreements.
Registering a trade mark gives the owner the exclusive rights to the trade mark, in relation to the goods and services covered by the trade mark registration, in the country of registration. As part of this protection strategy, it is important to consider whether local language variations such as Arabic or Mandarin versions of the mark need to be protected.
As a trade mark registration effectively grants the owner a monopoly, it can prevent competing institutions in that country from using the same or a similar trade mark. Trade mark protection also enables institutions to capture and protect the value in their brands by attracting investors or generating alternative revenue streams through licensing arrangement in new markets.
For the development of a new education project or the expansion of an existing institution, land is a key consideration. The location, availability and cost of the plot of land is crucial to the project moving forward and the investor making its desired return on investment.
When searching for a suitable plot of land many factors need to be considered to ensure the correct positioning of the school within the local market. Factors such as plot size, catchment area and local community, appropriate cost per square metre and the suitability of the plot in the eyes of the local regulator will all have an impact on the commercial viability of the school project, the school fees to be charged and the positioning of the school in the eyes of its stakeholders.
Land can also pose an issue for construction and opening deadlines. Western curriculum schools, for example, will need to be constructed relatively quickly to ensure that they are fitted out and ready for a September opening. Obtaining government approvals on the land (including education regulator, municipality and urban planning authorities) in a timely manner are critical for contractors to meet their deadlines. Land that does not have appropriate approvals and which may require fresh applications to change the zoning of the plot will add an extra stress on an already tight deadline.
4. Recruitment and retention of teachers and the senior management team
Despite advances in the use of technology to educate, and the advances in the design and build of the physical environment in which students are taught, one of the key drivers for success is teaching staff. The key outcomes for any education institution all depend on the quality of its teachers. It is therefore not unexpected that a very large proportion of an education institution’s cost base is its employees. Balance needs to be struck between controlling costs but ensuring high quality teaching staff. An institution will be judged on the outcomes and progress of its students and the value of the international campus can be severely diminished if the market perceives that the quality is not there. This will also have a massive impact on the reputation not only of the international campus but of the education institution itself and may diminish the brand.
It will come as no surprise, given the amount of recent articles on the subject, that for British curriculum schools there is a shortage of British trained teachers and this is only set to get worse. Education institutions all over the world will soon find that they are competing with each other to hire quality staff. Salary, benefits and working environment as well as the lifestyle of the country where the international campus is located will all be key in ensuring this recruitment.
Retention of good quality staff is also important in maximising value. Education institutions will need to consider how best to motivate and retain their star performers and this may not be purely focused on financial benefit. From our discussions with education institutions there appears to be much more of a focus on training and professional development, as a way of incentivising and retaining their staff.
5. Regulatory compliance
It is important that institutions and investors understand the regulatory framework in which the international campus will operate. Not only will this have an impact on the level of fees that can be charged but also when and if fees can be increased and by how much.
Increases in regulation have an impact on the operation of an education institution as there is time and staff cost in ensuring compliance. For example school inspections, especially if the school has additional inspections over and above the local regulatory inspection (for example British schools overseas validation) are incredibly time consuming.
In the Middle East, fee increases are linked to the performance of the school, which are monitored through inspections. If a school performs well then school fees can be increased which will assist with maximising value (or at least help manage inflation). Under performance will severely affect the financial and reputational value of the international campus.
Understanding the regulatory framework within which you will need to operate will allow you to plan for unexpected changes to regulations or at the very least allow for a contingency within your business plan to take into account cost implications of regulatory compliance.
Local regulations may also have an impact on the education institution in its home jurisdiction and thought will need to be given to the best corporate, governance and/or contractual structure to put in place to mitigate to risks that this may impose on the education institution.