With third party finance entering the language travel industry on a large scale, in the form of investment companies such as Champ Private Equity and Petersen Investments (Study Group) and mega-companies such as the Washington Post (Kaplan Aspect), it becomes inevitable that these companies seek to apply economies of scale to their products by using their substantial capital to secure a wider network of schools.
In an industry that is in many countries nearing 20 years of age (or more), it is also a fact that there are owner-operators out there who must be considering their options when it comes to the future of their enterprises, while entrepreneurial owners are always considering expansion. The result has been a regular cycle of sale and purchase, of small-to-medium sized chains slowly expanding their reach and in the last five years, of big groups becoming much stronger amid mergers or acquisitions.
In this current climate, it seems likely that even more acquisitions will be happening in the future. There are a number of companies that are considering further expansion Kaplan Aspect, EC, OISE and Study Group in the USA to name just some of the acquisition-happy players. The latest high profile takeover was the Kaplan Aspect buyout of PLI in Canada earlier this year, following on the heels of its purchase of IH Queensland in Australia (see LTM, February 2008, page 7). Prime Education launched last year, with the announcement of its intention to acquire a medium-sized network of schools (see LTM, January 2008, page 6). Other examples of business activity last year include the Olin Center in Boston, MA, USA becoming part of the EC Group and Cambridge Education Group being taken over by Palamon Capital Partners.
David Jones, Managing Director of International Development at Kaplan Test Prep and Admissions, a spokesperson for Kaplan Aspect and ex-owner of Aspect (before the merger), acknowledges the likelihood of further takeovers in the future. “The industry certainly appears to be trending towards consolidation,” he says. “For individual schools and for small school chains, there are obvious attractions to becoming part of an international group... From the point of view of the large organisations, the acquisition of high quality schools makes good sense, as they benefit from established local experience and connections, and can also learn best practices which can be adopted more broadly throughout.”
When asked to speculate where takeovers may take place, he points out that many of the longest established schools and therefore more likely to consider selling are in the UK, but suggests that all major English language speaking countries will see further activity. And as to whether Kaplan Aspect would look outside of this English teaching market, the answer is also yes. “Kaplan operates one of the largest Chinese-teaching schools in the world so there is nothing to say that we are wedded to the idea of teaching only English,” he says. “We’re always exploring strategic opportunities for growth.”
Andrew Hutchinson, Director of Prime Education, says this company has ambitions to open up to 10 schools in key Anglophone countries. “We see a great deal of potential in building a high quality, mid-sized group which will be positioned in the space between the large corporations and the single site institutions,” he says. “Developing lasting partnerships with quality providers will be just as central to our plans, and to our ethos, as the pursuit of straight acquisitions.” At OISE, Managing Director, Till Gins, whose group of schools spans many countries, comments, “We shall be making selective acquisitions in line with our strategy to instill a new lease of life into any pioneering language schools established in the 60s, 70s and 80s which might want to join our group.”
Agents’ point of view
When a school does become part of a larger chain, there is often concern from the school’s existing agents about how their students will be affected. Robyn Inman, Managing Director and recent vendor of PLI, tells Language Travel Magazine, “[Agents] want to make sure their students still have a good experience and receive what they expect the same level of care, service and attention to detail.” Many readers concur with this point.
In Korea, Young Sun Jung of Sugi & Sunny Agency says he finds that “school takeovers are very inconvenient for me”. He explains, “So far three schools I worked with have been taken over and I wasn’t notified in advance, which caused quite an unhappy situation with students at the time.” Like many others, Jung says that he would be happy to continue working with a school under new ownership, but he says he would not place students at a school during a takeover period if he felt that service levels might be disrupted or staff might leave. “Certainly I wouldn’t recommend [a school being taken over] to students until [business] has settled down and I know more about the new structure and staff,” he says.
Most agencies canvassed for this article said they would continue working with a school irrespective of whether the management team or key staff remained. “Of course it is more pleasant to work with people you know,” comments Jevgenia Kalashnikova of JT Agentuur in Estonia. “But I understand that any changes bring new people. For me, it’s more important [that] the quality of the school and the quality/price ratio [remain the same]. And of course, client feedback.”
Flavio Crusoe, Director of BEX Brazilian Exchange in Brazil, adds, “If the school needs to change the staff we would continue cooperating with them, as long as the new staff are as good as the previous.” And Arun Jacob of ArrayNZ.com in India says, “I believe our relationship is with the school and not with the individuals who work there.”
That said, this industry does engender a lot of loyalty and trust and there is, as Inman observes, a degree of faith bestowed on the selling school that their new owners will maintain the same standards. Or, as Jacob puts it, “a takeover will make us apprehensive to some extent”. But he attests that a change is not necessarily a bad thing: “Sometimes the change may be for the good with better management coming into place.” Jean-Daniel Jemora of Link Study in Switzerland agrees. “Usually it takes time to see changes and they can even be positive...,” he notes.
Onus on management
So if the business relationship and trust established rests with a school rather than particular staff, what of the ownership? Does it matter who owns a school as long as its character and standards are maintained? Jacob makes the point that a good management team, albeit with new staff, is more important to him than ownership: “I will lay a lot of emphasis on the management structure irrespective of who the owners are. For instance, some of the schools we work with in New Zealand are owned by Chinese but managed by professional Kiwi managers, so it works well for us.” Crusoe adds, “For us it is not important who owns the schools, but who runs and makes daily decisions that affects the students and the quality of the school and courses.” Jimmy Kamajaya of Global One in Indonesia is of the same opinion: “For sure the management structure is even more important than the ownership structure as the live or die of the organisation depends on the structure of management.”
While chains may profess that reliability across schools is an assurance that they can offer clients, it seems that a local management set-up that is relied upon is a school’s best asset, no matter how big or small an organisation it is part of. As a large chain, Kaplan Aspect seems cogniscent of this fact and Jones underlines that their language teaching centres are operated at a local level rather than from a central office. “Student service is at the heart of everything we do, so Kaplan Aspect is committed to retaining the high level of personal service that both agents and students have every right to expect,” he explains. “While we have a lot of locations, each school is managed locally by directors who are passionate about retaining the individuality and character of their own school.”
To this end, PLI in Canada will continue to be operated by Inman and her husband and “all the staff are staying in place”, she notes. OISE also operates a similar buyout policy. While many of its schools do not bear the OISE name and continue to operate under their original brand and identity, they also benefit from OISE’s financial and educational resources which give them access to far more opportunity for improvement and growth than previously achievable on their own.
Are takeovers good news for the industry therefore? This perhaps depends on whether effective competition is maintained which enhances the overall quality and range of educational programmes on offer. Good management in a school of whatever size is favoured by agencies, although the ability of chain schools to pay a higher commission (given higher profits achieved through economies of scale) should be a concern for smaller operators. This may not always be the reality, however. Consolidation forces the smaller players to work harder and maintain a point of difference or outstanding value. It also may encourage further consolidation to improve competitivity, although many smaller schools revel in their owner-operator status and join with like-minded schools through association with the International Association of Language Centres (Ialc), for example, which only accepts small-to-medium schools as members. Rather than compete with large chain schools, they compare, and underline the intimate business relationships and commitment on offer from smaller schools.
Over to Peter Dewhirst, who runs ELT Acquisitions, a company that deals with the sale and acquisitions of education, training and now agency business worldwide. “Takeover activity is stable at the moment,” he says, “but if the predicted economic downturn materialises there are likely to be clear winners and losers which will increase activity.”
Crusoe makes an observation on this growing trend in the language travel industry: “This is becoming very common, big chains buying small schools, and big chains merging or buying other chains,” he says. “I think this is a natural process as in some markets there is an excess of schools and some may not have the structure to survive with the same quality. But, in some other markets, where the number of schools and competitors is not so big, these takeovers may end healthy competition and this is not good for the market.”
How to approach buying a school
Often the first agencies hear of a takeover is when it is a done deal, but what processes occur to lead to a takeover happening successfully? Martin Lemon, Director of the IH-Wels Group, which has seven schools in the UK, USA and Australia, and took over the Salisbury School of English in the UK in 2006, explains. “We subscribe to various agencies who handle the sale and purchase of schools but some of our acquisitions have come through chance meetings or long professional association.”
Most purchasers agree that finding a school to buy is a relatively simple part of the process, done either by approaching businesses or being approached; more important is assessing if the school matches the existing school brand or chain. “The most important question for us is does it fit,” says Lemon. “In other words, does the school offer a location or business model that could slot in reasonably with what we are already offering. If we feel confident that the answer is yes, then we look at all the other aspects of the school premises, agent list, business volume, staff, etc.”
Nick Tellwright, Global Director of Study Group, comments, “Larger companies like Study Group are always approached when owners look to sell. We view every opportunity on its own merits and ask; is it well run? Does it have a good management team in place to carry on if the owners want to leave? Does it fit with what we currently do? Does it add strategic value?”
Zoilo Nieto, of Zoni Language Centres, relates that over the last five years, he has done an analysis of six schools with a view to purchase “and ultimately succeeded in acquiring three schools” (Zoni has centres in the USA and Canada). “It is a matter of the following: a desire to make the deal happen; experience; being selective; and vision to see the opportunities,” he says, noting, “You can’t expand into other countries or regions with a one-size-fits-all mentality. You must adapt to the market conditions and accept the culture of that school and the region it’s in.”
Peter Dewhirst of ELT Acquisitions acknowledges, “The main difficulties associated with language school takeovers in terms of business approach are to do with image, price structure and student base with price structure being the most important of the three. For this reason, most buyers look to buy schools similar to their own.”