The owner of Global University Systems (GUS) has instructed a pair of investment banks to marshal the sale of a minority stake in the higher education platform potentially worth hundreds of millions of pounds, EducationInvestor Global can reveal.
This publication has learnt that GUS founder and majority shareholder Aaron Etingen has handed a joint mandate to Rothschild and Goldman Sachs, asking the banks to draw up a list of potential investors whose capital would be used to fund future growth through acquisitions.
GUS was founded by Etingen, who serves as chief executive and chairman, in 2003. The Netherlands-headquartered group owns and operates 28 institutions across the world – including The University of Law in London and Arden University, the UK-based online university – which collectively enrol more than 68,000 students.
Bankers from Rothschild and Goldman Sachs are preparing the business for market and in the coming weeks will launch a formal auction process, during which they are expected to “cast the net far and wide” among private equity funds, sovereign wealth funds and family offices, a source said. Rothschild is also steering the sale of ACE Education, a French university group, finals bids for which are due at the end of this month.
A spokesperson for Rothschild declined to comment. Goldman Sachs and Etingen had not responded to requests for comment at the time of publication.
It is understood that GUS has awarded consultancy EY-Parthenon a mandate to produce a vendor due diligence report, which will be shared with prospective bidders. EY-Parthenon declined to comment.
According to ratings agency Moody’s, GUS last year reported earnings before interest, tax, depreciation and amortisation (EBITDA) of £121.5 million, against revenue of $600 million (£438 million). The organisation’s adjusted EBITDA stood at £146.9 million. Historic price-to-earnings multiples at which private higher education companies have traded in recent years suggest an enterprise value of at least £1 billion would be attributed to GUS – indicating that a minority stake would be worth several hundred million pounds.
A cash injection would provide GUS with a fresh war chest that it could use to hoover up universities, perhaps at cut-rate prices resulting from financial scars inflicted by the Covid-19 pandemic. Last May, GUS expanded its footprint in Canada with its acquisition of Trebas Institute, a for-profit music college.
GUS’s acquisition strategy has hitherto been funded by debt. In 2015, the company issued bonds worth £234.4 million to fund its takeover of The University of Law, which generates nearly a quarter (23%) of GUS’s total revenues. According to Moody’s, GUS has outstanding loans and credit facilities collectively worth around £1 billion.
By giving away a slice of equity, the size of which is unclear, GUS could bankroll additional acquisitions without increasing leverage on its balance sheet.
In December, Moody’s downgraded its outlook on GUS to ‘negative’ in light of the coronavirus pandemic, which constrained the company’s cash flows and increased its debt burden, now equal to 7.2-times EBITDA. The risk posed to GUS’s credit rating perhaps provides further rationale behind its pursuit of an equity sale.
“This level of leverage is very high for the current rating category and leaves the company with no capacity for operating or financial underperformance and debt-funded acquisitions,” Moody’s said in a credit opinion. “The coronavirus outbreak will continue to pose a major challenge in the 2021 academic year. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to the containment of the virus.
“As a result, we expect to see some de-leveraging over the next 12-18 months.”
The auction of a minority stake in GUS will come at a time of protracted uncertainty in the global higher education sector, in which universities continue to grapple with lockdowns, travel bans and pressure to reduce tuition fees – all of which have hampered enrolments and profit margins. Moody’s estimates that GUS would have suffered a 6% revenue decline in fiscal 2020, driven mainly by losses within its recruitment services division.
The London School of Business and Finance, the forerunner of GUS, was founded in 2003 by Etingen who, 10 years later following a restructure of the Russian-born entrepreneur’s holdings, established Global University Systems in 2013.
In the UK, one of GUS-owned University of Law’s main competitors, BPP University, a private equity-owned institution, is poised to return to market this year following a previous unsuccessful attempt at a sale, according to several well-placed insiders.
The sale of a minority stake in GUS will launch less than a year after one of its key European rivals, Galileo Global Education, was acquired by a Canadian pension fund and the L’Oréal family office in a €2.2 billion deal. Last August, Galileo took over loss-making Regent’s University London in a deal that was condemned by one of its former vice-chancellors.
Date published: 11 January 2021