Deal analysis

UK higher education – opportunities for investment

Matt Robb of the Parthenon Group identifies potential areas of growth among higher education providers.

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At a glance:

  • Several investments in higher education are already in the pipeline
  • A focus on marketing among providers should pay off in terms of investment
  • Online platforms are another area of possible expansion
  • Partnerships with other providers can strengthen the product offering

The coming year will be a watershed for investment in the higher education sector as more institutions take a voyage of exploration into private partnerships and joint ventures. We expect many new deals, including several already in the pipeline, to be finalised. Changes in funding structure will present new opportunities, and while the overall impact may be slow and steady, many traditional sector universities will be taking stock of their position in light of regulatory and tuition fee reform, and considering new business models and partnerships to enable them to attract both students and investment. The key questions for private equity investors and many private providers is where to look for the greatest growth opportunities and which investment models are likely to gain most traction.

Salary returns

Universities are starting to recognise the need to adapt to the much savvier decision-making of prospective students about what to study and where – based on the salary returns on their investment in an environment of higher tuition fees. Even now, UK students are more likely to highly rank job prospects after graduation, rather than reputation, in their decision-making about which institution to attend (57 per cent compared to 44 per cent). Recent analysis of official graduate salary figures also identified the biggest factors influencing the earning power of graduates, namely the health of the jobs market near where they study, and the subject studied – with big returns for excellence in business-related and STEM subjects.

Investment to pay off

Those institutions that enhance their ability to attract new entrants through investment in attractive course portfolios, more cost-effective delivery methods, and better marketing (typically using methodologies pioneered in the private sector), will be in a much stronger position to thrive in a more competitive landscape. Students understand very well what they are buying. In the US, it’s no coincidence that there is a strong correlation between the strength of the jobs market and where students graduate. Meanwhile, marketing and promotional expenditure of private providers is five to six times higher than in a typical UK university. For example, in 2009, Apollo Group spent $960m (€750.6m), or 24 per cent of total revenues, on marketing. This experience in developing often highly sophisticated commercial and marketing strategies, and successfully communicating the return on investment to students, is potentially extremely valuable to a traditional university partner, and could help to significantly increase dividends for both parties.

Online programmes

In the new, more debt-conscious landscape, universities also have an opportunity to grow significantly by offering online programmes that allow more flexible and cost-effective delivery. Any institution that can offer cost-effective delivery models giving students more choice in how they complete their degree through either the amount of time taken, the location of study or how this study is structured will be well placed. Online platforms will be an important part of many models, but are expensive for many traditional universities to replicate. Such developments need strong financial backing and both trade and financial investors will play an important role in filling this capital or capability gap, either through direct financial investments or the sharing of online assets and technology platforms with private providers.


Private providers will tend to do well by identifying potential partners already established in the higher education sector, with existing assets, skills and attractive market positions to buy into – rather than trying to compete from a standing start. There have already been notable examples of traditional universities testing the water to access capital and create new and innovative business models that put them ahead of competitors in the space. Award-winning examples from this year’s Times Higher Education Awards include Coventry University and INTO Higher. New models are emerging in which traditional universities are buying private colleges to capture a platform in London, or with a stronger portfolio of job-related courses.


The one common theme running through all these examples is that of employability. This is the most important medium-term lens through which any business case for investment in the sector should be viewed. Investors considering potential opportunities to invest in higher education in the next 12 months should be thinking along the same lines as a typical 18-year old undergraduate about to make probably the most important investment decision of their lives: “in one of the toughest labour markets in living memory, will this course at this institution help me get a good job?”

Matt Robb is senior principal at the Parthenon Group.