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September 2013 issue

Contents
News
News Round Up
Inside the industry
Agency Survey
Secondary Focus 1
Secondary Focus 2
Tertiary Focus 1
Tertiary Focus 2
Vocational Focus

Special Report
Course Guide
Spotlight
Destination
Regional Focus 1
Regional Focus 2
Market Analysis
Grapevine


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Takeovers and mergers – the consolidation of the study travel industry

The study travel industry has experienced something of a boom in takeovers and mergers over the last few years and some industry insiders predict that this trend is likely to continue, as a consolidation of providers in this business sector. Bethan Norris takes a look at some of the high profile players in this business expansion strategy and finds out what consolidation means for the industry as a whole, as well as for agents and students.


Although ELT dominates the global language learning arena, and will continue to do so for the foreseeable future, the proA casual glance at the industry news pages for the last few years reveals that there have been 26 instances of a chain or private equity firm taking over a language school or college of further education since the end of 2011 and that this strategy for business expansion seems to be gaining ground. A recent study conducted by Student Marketing for national language school association English UK predicted that there would be a minimum of 200 further acquisitions in the sector by 2020 as the ratio of chain schools to private providers increased.

Samuel Vetrak, CEO of Student Marketing, explains that the presence of more chains within the study travel industry would come about as a natural growth development within the business sector. “Looking at other comparable industries, we found that 50-to-70 per cent of businesses within the US hotel industry, for example, were part of a chain compared with 25 per cent in the language travel industry,” says Vetrak. “This led us to conclude that the language travel industry has not yet reached the level of chains that other comparable industries have. If we look at growth trends we see that different business sectors go through life cycles and the language travel sector is going through a consolidation phase after a period of rapid growth. We predict that the growth rate of natural market demand in the next seven years will be quite moderate and not as strong as in the immediately preceding decades. Therefore we will see the growth of more chains in this consolidation phase.”

Organic business growth
As a business sector, language travel is relatively new with a number of the big names in the industry setting up as family-run schools in the 1950s and 60s. In the last five or six decades, the number and scope of language schools has increased rapidly with the larger chains such as Aspect, Kaplan, British Study Group and Embassy starting to merge operations in the 1980s and 1990s. Acquisitions as a business model of growth therefore is nothing new for the industry, but the rate at which these acquisitions are occurring certainly seems to be on the rise.

Vetrak puts this trend down to the saturation of the student market making it difficult to open new schools as existing schools increasingly find it more difficult to survive. “Independent schools will increasingly look for an exit strategy as they face a period of low growth,” he says. “Marketing costs will go up as they chase more agents in different countries in a bid to stay competitive, diversify their student base and stay resilient in the face of future economic problems. It is therefore natural for schools to group together in alliances or chains as they share marketing costs. Also, many school owners are coming up to retirement age and are either passing on their business to their children or selling it on.”

At a time of increased competition between schools, investment from outside parties or larger chains is vital for survival as state-of-the-art facilities become the norm in schools. Vetrak comments, “In a low-margin industry, there isn’t much opportunity for investment from banks. Commodities and school facilities are increasingly important in this phase and schools are looking for potential investors in order to stay competitive.”

One school chain that has embraced the acquisition model for expansion, as well as setting up new schools of its own, since 1997 is Malta-based EC. The chain’s latest acquisition was in September 2011 when it purchased three schools owned by LSC Language Studies Canada in Toronto, Montréal and Vancouver which marked the chain’s first foray into the Canadian English language teaching market. Andrew Mangion, Executive Chairman of EC says that there are a number of advantages in acquiring schools that are already going concerns [a term for a company that has the resources needed in order to continue to operate indefinitely]. “It offers fast access into a new country which one has little experience with and acquisition of local operational and sales knowledge,” he explains. “There is also the acquisition of best practices which can be assimilated into other schools, the acquisition of licences and accreditation and established accommodation networks.”

Mangion believes that many of their agents appreciate the advantages that come with working with a large chain. “The sales function is centralised so our partners deal with one contact at our central office for all destinations. This allows them to have a strong relationship with their key representative,” he says. “Many of our agents, who are very happy with the consistency and standard quality that they get at EC, happily choose to work with us in all or most of our destinations which saves them time and money. We even have agents actively urging us to move into new destinations that they feel would benefit from having an EC school there. We have always adopted a very consultative approach with agents and we listen to what they have to say.”

Other school chains that have used acquisitions to break into a new student market in recent years include: UK-based British Study Centres which acquired Access to Language Studies in the USA in February 2012; ISIS Education, based in the UK, which acquired the two schools that make up Eurocentres Canada in January 2013; Australia-based SELC, which acquired English Bay College and Lions Gate Career College in Vancouver, Canada, in November 2012; German-based Sprachcaffe, which acquired Centro Linguistico Italiano Dante Alighieri in Italy in August 2012 and Geos North America in September 2011; and, most recently, Spanish teaching giant Ideal Education Group, which acquired the Academia Columbus schools in Mexico, Ecuador and Costa Rica in July this year.

Ideal Education Group, made up of the five Spanish language school brands Enforex, don Quijote, Solexico, EduSpain and Enfocamp – as well as Academia Columbus – is the largest group specialising in Spanish language education with schools in Spain and throughout Latin America. Antonio Anadón, Founder and President of the group, which started life as a single language travel agency called Enforex Study Abroad in Madrid in 1989, says, “Since its founding 25 years ago, IEG has continued to expand and develop during each phase of the organisation’s growth. Academia Columbus will continue under its own brand, maintaining the characteristics and features that make it the personal, professional schools that they are now, counting with the IEG Support and network.”

Kevin Warham, Marketing Director at SELC says that the time and expense involved in setting up a new school from scratch would be necessarily prohibitive in certain countries whereas buying an existing school means that “the necessary licences and accreditations are already in place”. He adds that the group has plans for further expansion in the future, both in Australia and further afield. “SELC plans to expand into the vocational sector in Australia for both international and domestic students with the opening of SELC Sports and Fitness Career College later this year,” he says, “whilst at the same time expanding the vocational side of our operation in Vancouver through (PICTIA registered) SELC Canada Career College. In the future there are also plans to open a limited number of new schools in North America and the United Kingdom.”

The rise of the venture capitalist
One development that has become significant in terms of acquisitions within the study travel sector is the increase in the number of outside investors buying up language schools and colleges, often with the promise of investing large amounts of money into new facilities and offering a centralised management structure. Vetrak puts this interest from outside investors down to increased publicity regarding the study travel sector in the mainstream business world. “It is perceived as a safe industry to invest in as parents and students continue to study abroad even in the recession,” he says. “The study abroad industry is more resilient to economic downturns than many other industries. In 2008/09 the study abroad industry didn’t suffer as much as other industries did.”

One of the newest education groups to surface due to investment from outside the industry is UK-based Astrum Education which was launched in March this year as a facility within the venture capitalist group Sovereign Capital. Astrum Education consists of three sixth-form colleges in London, which were acquired by Sovereign Capital in September 2012, and is headed up by Glenn Hawkins, former Managing Director of Cambridge Education Group Colleges where he worked for seven years. Hawkins says that the group has big plans to develop the international aspect of the three colleges and also invest in new facilities and expand the group in the future. “We want to add capacity to all three colleges,” he says. “Currently, Chelsea Independent College is the most international as it has 60 per cent British students. Duff Miller College in Kensington is made up of 95 per cent British students and Lansdowne College in Bayswater has 85 per cent of the student population made up of British students. We have a new building being refurbished in Chelsea with new state-of-the-art facilities and aim to expand the other two colleges in the next two years. We have also added student accommodation to the college in Chelsea – 75 studio flats for international and British students.”

Hawkins believes that sixth-form colleges are an attractive proposition to international students due to the flexibility of the subject combinations on offer although he doesn’t intend for the group to cater solely for the international market. “Students have told us that they want to mix with local students while they study,” he says. “Astrum Education is unique in that we develop a specific learning programme for each student where their specific education journey to reach their goals will be mapped out from day one. All international students want to go on to study at a university and we will provide a bespoke learning programme that is determined centrally to help them achieve this goal.”

The group plans to acquire more education providers in the future – whether other sixth-form colleges or 11+ education providers – and develop the international arm of the business. Hawkins says that the main aim of the group was to eventually sell it on as a going concern. “There tends to be a life cycle of five-to-seven years of investment then the groups get sold on. The management teams tend to stay the same so there is no change to the students, just the investor changes.”

To get an idea of the money to be made by investors in groups such as these, another education group backed by Sovereign Capital, Alpha Plus – where Glenn Hawkins was the former Group Sales and Marketing Director – was purchased in 2002 for UK£26 million (US$39 million) and sold in 2007 for an undisclosed sum that represented a return of 5.5 times its original investment. In the more recent sale of World Class Learning to Nord Anglia Education (owned by Baring Private Equity Asia) in May 2013, Sovereign Capital reports that the deal saw the group receive a multiple of 5.3 times the money invested after it bought the group for £34 million (US$50.8 million) in 2008.

Other private equity companies who have found their investment in the study travel sector to be well worth while include Australian firm Champ and Petersen Investments, who acquired Study Group for AUS$176 million (US$160 million) in 2006 and sold it to Providence Equity Partners in 2010 for AUS$660 million (US$602 million), while Palamon Capital Partners is reported to be negotiating a sale for Cambridge Education Group at the time of going to press for an estimated UK£200 million (US$299 million) after buying the group in 2007 for UK£10 million (US$15 million). Another big money buyout in the study travel industry involving a private equity firm this year was the sale of a 25 per cent stake in Into University Partnerships to Leeds Equity Partners for UK£66 million (US$99 million).

Meanwhile, a private equity company based in Canada has been extremely active in buying up language and study travel providers in the last two years. So far the Loyalist Group has purchased three language schools and one international secondary school in Canada since October 2012 and Andrew Ryu, Chief Executive Officer at the group, has expressed intentions to expand further in Canada and the USA. “I formed Loyalist as a vehicle to consolidate the industry,” he says. “I identified the industry as worth investing in after travelling across Canada. I noticed that ESL schools are clustered in a specific area, which makes it easy to consolidate. We are also in the process of launching a student housing business.”

When acquisitions go wrong
However, investing in the study travel industry is sometimes not entirely plain sailing. A recent example of a takeover having a less than desirable outcome is that of German-based travel company TUI Travel acquiring the junior summer language study provider EAC in the UK. TUI acquired the successful junior residential summer camp brand in 2009 and announced that the operation was to cease trading in March 2013.

Explaining the reasons for the closure earlier this year, Janet Galbraith, Product Development Manager of TUI’s Junior Residential Group, told Study Travel Magazine, “We have been particularly affected by the decline in business from markets such as Spain, France and Italy that traditionally sent volume-driving business to EAC. While we have seen good growth from long-haul markets in recent years, the growth has not been enough to replace lost business. Within the last two years our reliance on government contract courses has increased to a point that EAC’s business model is no longer sustainable.” Five of the 13 centres operating under the EAC brand were still operating in 2013 under the sister Experience English language school brand owned by TUI.

The future
It is likely that investment from outside the industry will continue and increase in the next few years, however, as business investors see the sector as a good bet. Business expansion through acquisition is also likely to continue as the language travel sector moves onto a different phase in its life cycle. Warham from SELC says that they plan to use their vast experience gained during 28 years in the industry, as well as call upon advice from friends in the industry to direct their future business strategies. “[We will use this] to advise on prospective schools in such destinations which have an interest in being acquired to then deliver educational programmes with SELC’s established and respected brand,” he says.

The fact that there is big money to be made in the industry is also an encouraging sign that business is doing well and is likely to stay this way in the future. And with increasing investment it is likely that standards will rise and schools will concentrate on developing new facilities and offering all the mod cons that today’s students are starting to expect. The next few years herald an exciting time for the study travel industry and it will be interesting to see how a period of consolidation will affect the development of new products and infrastructure.



Do independents have a future?

With so many acquisitions occurring in the study travel industry, the question comes up as to whether there is still a place for independent operators in the sector. One family-run business that is proud to describe themselves as a serious competitor to the many corporate chains that exist in the sector is St Giles International. Hannah Lindsay, Group Sales and Marketing Director and granddaughter of founders Paul and Diana Lindsay, says that they cater for 14,000 students each year in a warm family atmosphere. “Although large corporate chains have the benefit of having a seemingly never ending amount of capital being pumped in, allowing for huge, fast expansion, at St Giles we believe in sustainable, manageable growth,” she says. “Our considerable size and well-established strong foundations enable us to expand but at a rate that we feel completely comfortable with and at which the quality of the courses is not compromised. No doubt, selling your chain can be very profitable for the owners, however, it may not always be the best choice for the business. Getting involved with the takeovers and mergers game can be unsettling for a business and its employees. Indeed it could be said that you can easily lose the soul of the business when you enter this arena.”

Despite still being owned by the same family who set up the school 58 years ago, St Giles has no intention of resting on its laurels. Lindsay says that they plan to expand and renovate many of their year-round centres and two new junior centres are due to open in the UK and North America in 2014. “As for the broader future, we would like to open more year-round centres in North America, however, specific destinations have yet to be chosen.”

Lindsay adds that agents appreciate the personal touch afforded by family-run businesses. “We offer a direct line to the owners, which other corporate chains cannot boast. This way it is easy to take on ideas and improvements suggested by agents. Moreover, we can offer a very personal service due to the huge amount of information that we have garnered through the long-standing relationships that we have built up with many agents over the years. Indeed several agents have known my family for decades, having been in contact with all three generations!”

The power of a brand name

The benefits to expansion through acquisition are mainly so that schools can consolidate marketing and administrative costs, thereby making them more competitive in the market place. There are also many benefits to be gained from taking an existing brand name to a new destination as agents and schools are already familiar with what it stands for. Andrew Mangion from EC says that they have been very clear about operating under only one brand name since they started acquiring existing schools. “EC is today well-recognised by agents and students as a quality English language school group that focuses on offering top quality facilities in great central locations to a very international group of students from around the planet, serviced by a highly engaged team that go the extra mile and share the same purpose of helping students succeed in a global community,” he says.

He adds, “Students and agents recognise our brand promise via our marque which is EC. When we acquired the schools in Canada, we took an established product with a good track record, invested millions in upgrading the facilities and made them even better. We have built on strong foundations from LSC and the new and improved schools are now very much EC schools.”

Another school chain that has been active in rebranding acquired schools to their own brand is SELC, which now has three schools in Sydney, Australia, and two schools in Vancouver in Canada. Kevin Warham, Marketing Director at SELC says, “I would suggest that having several schools under one brand creates confidence in that brand – for students and agent partners – if a consistent and reliable quality framework for course delivery, student services and marketing management is achieved within each school bearing its brand."

Talking about the Vancouver acquisition specifically, he adds, "When SELC purchased a pre-existing school in Vancouver the Director of Studies, Kim Rennie, and myself joined our MD, Takashi Honjo, to spend some time at the beginning of this year in transitioning the previous school into a ‘SELC’ school. On the academic side this involved observation and retraining of teachers where necessary as well as integrating and adapting the Australian SELC curriculum and timetable into the Canadian one and cherry-picking the most suitable and relevant learning materials and resources from each to then deliver in the classroom. This new SELC Vancouver curriculum was successfully trialled and introduced in May this year and the feedback from both teachers and students alike has been very positive.”


Agents point of view

“We are working with 43 language schools and colleges and 98 per cent are independent. The ownership of the school is a very important factor when deciding which partners to work with. From our 10 years' experience, it is much more comfortable and flexible to work with reliable independent partners. They might be colleges organising their own summer language programme or independent providers having just a few centres but who are focused on the programmes and are more careful and close to his/her agents [viewing them] as an important business partner. The main problem noticed with the groups is that they sometimes lose the control [of the individual schools] and they treat the agent as a tool not as a partner in selling their services.”
Daniela Pavoni, Mirunette International Education, Romania

“School chains have better marketing in general, though one could get lost when the corporation gets too big. As for an agent it is easier to work with a chain of schools for the following reasons:
same/similar programme structure (easier to learn about different schools); same/similar standards; less communication; one representation agreement covering all schools within a chain; students can choose to study in two or more places under one enrolment and with less cost than if studying at two independent schools; it is easier to sell schools if the chain is known to be reputable. The disadvantages are: confusion if communication (about campuses and programmes) is not clear; if one of schools within a chain gets a bad reputation or fails, it has a negative effect on all the other partners; based on the experience with Geos Australia – even a good chain can fail so the chain schools are not always a guarantee. Our ratio is about 50/50 per cent for chain/independent schools. I trust independent schools a lot more if there is a family ownership and I know the owners personally. Especially, trustworthy independent schools would be members of international language school association Ialc. Factors in who to work with are: value for money (for the student and parents), range of courses, standard of tuition, location, quality of campus and services.”
Olga Goerke, Director, COM-IN Study Abroad, Czech Republic

“These changes [the development of large chain schools] are happening in all sectors and in all of the world. Working with a group of several schools we will have a single central contact and a standard for all schools, multiple destinations with the same brand – if it is quality, of course – a probability of more attractive prices can be a differential. We have nothing against this school model, if quality is a basic rule. On the other hand, the care of an independent school is always attentive, personalised, differentiated. We have some independent partner schools and we are happy to work with those schools.”
Denis Mello, MA Intercambio & Turismo, Brazil

“Yes there are advantages to working with a large group of schools owned by the same person or company as in admissions and also in sales it is easier to have one name for many destinations. Only 10 per cent of schools I work with are independent. For me, as an education counsellor, there are many advantages to working with larger chain schools, such as discounts, assurance in programme quality and locations – you have to learn only one brochure to sell the school located somewhere the student is asking for. It is easier to communicate as I have one agreement and one set of terms and conditions – something that can cause problems with bureaucracy for many schools and destinations. The downside is the generalisation – sometimes it is nice to have a special school that is small, with a different name, as the service will be much more personal and careful, rather than from a school who is so big in name and numbers that it is easy to lose details or small student/agent requests. Also, large chains can lead to the closing of small schools who really know how to do the business since they are located in their home city which they know far better than a group.”
Adela Makashi, ANDE-LM Agency, Albania

Contact any advertiser in the this issue now

The following language schools, associations and accommodation providers advertised in the latest edition of Study Travel Magazine. If you would like more information on any of these advertisers, tick the relevant boxes, fill out your details and send.

Name

Company

Country

Telephone

Email


ACCOMMODATION
Generation Estates  

ASSOCIATION/GROUPS
ALTO  
CAPS-I (The Canadian Association of Public Schools – International)  
Quality English  

BELGIUM
CERAN Lingua International  

BRAZIL
FAAP - Fundação Armando Álvares Penteado  
IH Sao Paulo  

CANADA
Abbotsford School District Business Company  
Algoma University  
Avon Maitland District School Board  
Bow Valley College   
Calgary Board of Education  
Camosun College  
CAPS-I (The Canadian Association of Public Schools – International)  
Centennial College of Appplied Arts and Technology  
College of New Caledonia  
COMOX valley - School District 71  
Eastern Townships School Board  
Edmonton Public Schools  
English Montreal School Board  
Georgian College  
Grande Prairie Public School District  
Greater Victoria School District #61  
Halton Catholic District School Board  
ILSC - International Language Schools of Canada  
Langley School District #35  
Louis Riel School Division  
Niagara Academy of Sports  
Nova Scotia International Student Program  
Peace Wapiti School Division  
Pembina Trails School Division  
Pickering College  
Qualicum School District #69  
St James - Assiniboia School Division  
Study Manitoba School Divisions  
Surrey School District  
Waterloo Catholic District SB  
West Vancouver School District #45  

ENGLAND
Churchill House/English Home Tuition Scheme  
GSM (Greenwich School of Management)  
Kaplan International Colleges  
London School of Business & Finance  
PGL  
Quality English  
Queen's College  
St Giles International  
University Campus Suffolk  

EVENTS
Alphe Conferences  
SR Events  

EXAM BOARD
Cambridge Esol  

HONG KONG
English For Asia  

IRELAND
ISI Dublin  

ITALY
Comitato Linguistico  
IH Palermo  
Italian in Tuscany  
Studioitalia  

JAPAN
Akamonkai Japanese Language School  

SPAIN
International House Sevilla CLIC  

SWITZERLAND
EF International Language Centers  

TOURIST BOARDS
Malta Tourism Authority  

USA
Besant Hill School  
Educatius  
ELS Language Centers  
Forest Ridge School of the Sacred Heart  
Fork Union Military Academy  
Glenholme School  
IH Pacific (Vancouver, Whistler, San Diego)  
Meritas LLC  
Montverde Academy  
Rutgers Preparatory School  
Zoni Language Centers  

AGENTS
Boa Lingua  
ESL Ecole Suisse de Langues  
Idealist Education Consultancy  
Insight Lingua  
World Study Head Office  

AUSTRALIA
English Australia  

CANADA
ILSC - International Language Schools of Canada  
Sol Schools International  

ENGLAND
British Study Centres  
Cambridge Education Group  
Churchill House/English Home Tuition Scheme  
International House World Organisation  
InTuition Languages  
St Giles International  
Twin Group  
University Campus Suffolk  

FRANCE
Accent Francais  
France Langue  
French in Normandy  

GERMANY
BWS Germanlingua  
F+U Academy of Languages  
GLS Sprachenzentrum  

IRELAND
ISI Dublin  

INSURANCE
Dr. Walter GmbH  
Guard. Me  
International Student Insurance.com  

ITALY
Accademia Italiana  
Babilonia  
Scuola Leonardo Da Vinci  
Studioitalia  

JAPAN
Genki Japanese and Culture School  
Kai Japanese Language School  

NEW ZEALAND
Academic Colleges Group  
Languages International  
New Zealand Language Centres - Auckland  

PORTUGAL
CIAL - Centro de Linguas  

SOUTH AFRICA
Cape Studies  

SPAIN
International House Sevilla CLIC  
Escuela de Idiomas Nerja  
Malaca Instituto - Club Hispanico SL  

USA
Rennert International  
TLA The Language Academy  

WORK EXPERIENCE
INTERNeX  
Tellus Group