51³Ô¹Ï

More universities could look to private investment to cope with their growing money problems, but it could be too late for non-elite institutions, financial experts have said.

With?nearly half of English universities?facing a financial deficit this year ¨C and little sign of a significant cash injection from the government ¨C universities are becoming more open to deals with private companies to shore up their cash flows.

These sorts of deals already happen in the private sector. In July, 51³Ô¹Ï University Systems, the owner of Arden University, agreed to sell a 50 per cent stake to private investment firm Brightstar Capital Partners.

While less common, there is also a precedent in the non-private?sector. The University of Law, which was a royal charter corporation, was bought by a private equity firm in 2012.??

¡°We still get approached by these private equity firms on a pretty regular basis who want to find deals, but there¡¯s a dearth of deals here,¡± said Glynne Stanfield, consultant and former partner at Eversheds Sutherland.

¡°Some won¡¯t like the idea of being owned or controlled by private equity,¡± he continued. And, from both sides, ¡°there¡¯s a big degree of nervousness as to what it would mean to actually take over one of these larger institutions. Where the takeovers have happened ¨C this conversion from public to private ¨C they tended to be quite small¡±.

Private investment doesn¡¯t necessarily mean a full-scale takeover. Partnerships with private accommodation providers are already common, and there are also many examples of joint ventures such as science parks and offshore campuses.

In a??as part of its?work on sector transformation with Universities UK, professional services firm KPMG predicted ¡°we may start to see more co-branded branch campuses and partial structured mergers¡±.?

¡°As more universities start to face financial deficits and declining enrolments, well-funded?private providers may seek to acquire assets, campus infrastructure or validated programme rights,¡± the report says.

¡°It¡¯s hard to imagine a wave of full-scale mergers, however we are aware that some private providers would seriously consider such a merger if the opportunity presented itself, so it¡¯s not out of the question.¡±

Despite their reservations, new factors are pushing universities ¡°to want to go down that route,¡± said Graeme Aithie, partner at corporate advisory firm QMPF, including the higher cost of borrowing in recent years.

¡°Universities are less inclined to want to borrow directly because of financial covenant pressures and financial sustainability, but there¡¯s quite a few universities¡­wanting to grow student numbers and, if you want to attract students, you need to have nice places for them to stay.¡±?

However, while institutions are becoming more open to this kind of investment, some private companies are more wary in the face of the sector¡¯s financial challenges and are becoming ¡°increasingly selective and sophisticated in the types of universities and projects they¡¯d like to partner with¡±, said Aithie.?

Although higher education is still an attractive investment, ¡°where investors are investing for the very long term ¨C so up to 50 years in some cases ¨C they want to be very certain of the core USPs and drivers for that particular institution, and why it¡¯s still going to be attractive to students in 20 years and more¡±.?

¡°The elite Russell Group and most prestigious universities have the most options available to them,¡± he said.?

Nonetheless, KMPG said that if the trend is set to continue, ¡°policymakers will need to consider what changes need to be made to the regulatory environment to ensure there are sufficient quality assurance and student protections in place¡±.

helen.packer@timeshighereducation.com