A marriage of minds
Changing circumstances are prompting many independent schools to consider mergers and acquisitions. Robert Boyd urges schools to review their current business model to anticipate future needs and impacts
Merger activity between independent schools has reached unprecedented levels during the last twelve months. Some of the reasons for this are highlighted in the ISC Census 2006: parental concerns about the relentless rise in fees, cost pressures from the rise in state sector salaries, the demographic downturn, stronger competition from state schools, and the extent of reliance on overseas pupils.
A separate ISC survey reports that almost 10 per cent of independent school pupils live in post codes where incomes are below the national average. A further 14.5 per cent live in areas where incomes are only just in line with the national average. Add to this the ongoing debate about co-education and the fact that day fees at an independent school are typically £7,000-£10,000 a year, but may be £15,000 or more for day pupils at a boarding school. It can be seen that more forces for change are at work now than ever before.
“Although an M&A may appear to you as the most obvious way forward, unless you can convince staff and parents that it is, then it will fail.”
Why?
There is a key underlying issue to all this that can easily be lost in the statistics. It is that independent schools, like any other business, need to review their business model regularly and adapt to changes in the market, because the marketplace is very unlikely to adapt itself to the school. During the last three years we have seen a unique combination of trends and pressures in what is otherwise a stable economy. They include:
- Demographic change, which is more significant in some regions than others. A drop of 0.6 per cent in the nursery sector or a 1 per cent drop in the primary sector may not seem very much, but it is cumulative and will have a significant long-term effect (ISC Census 2006). Falling rolls are already evident in many schools;
- The local economy also becomes significant if a major employer closes or if higher-income families move out of the area and are not replaced;
- Competition from state schools and further education colleges is starting to bite and will increase as they become better funded (Budget Speech 2006). Moreover, fee levels may be approaching the tipping point for many families with two or more children to educate; it is clear that some families are opting for 5-11 state education in the (often mistaken) belief that an educational deficit can be made up at a later stage;
- Competition from rival independent schools can also be fierce. If a well-resourced independent school changes its business model to increase its age range or become co-educational, then this may render one or more weaker competitors non-viable in their present form;
- The trend towards co-education is undoubtedly placing the smaller all-girls schools under pressure in some areas; it is a notoriously difficult and slow process for a girls’ school to become fully co-educational and is quite impossible in most cases;
- Many small preparatory schools find it difficult to retain a sufficient number of girls at the end of Year 6. Some parents are moving their children to an all-age school for Years 5 and 6 in the belief that they will be given preference and special preparation for admission to the senior school; and
- The increasing financial pressures from Government, and the increased public benefit requirements of charity law.
Of course, not all of these factors apply to all schools; some schools may be virtually immune to them. The only way to find out is to conduct a strategic review of the school’s business model to see if it is still right for the current market and economic conditions during the next five years. Equally important is the school’s attitude towards these trends. Governors who treat them as an opportunity.
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