Are private equity backers bad apples or golden eggs?

Anyone tempted by a potentially lucrative private-equity deal should carefully consider the incentives and the potential repercussions, writes Alex Lockey

Anyone tempted by a potentially lucrative private-equity deal should carefully consider the incentives and the potential repercussions, writes Alex Lockey

24 Sep 2023, 7:43

Transposing the world of private equity (PE) onto the education sector brings with it a curious mix of potential and perils. But the biggest risk is that both the hopes and fears of stakeholders are underpinned by a general lack of knowledge of the sector. So what does everyone need to know in order to proceed with due caution?

Dissecting the dilemma

As reported in FE Week, we’ve seen a surge in PE firms investing in training providers. High stakes, accelerated careers, significant exposure and control-centred dynamics are evidently tantalising for many. For others, the prospect of strong financial backing in a precariously and poorly funded sector is clearly a strong pull factor.

But there’s no such thing as a free lunch. The PE arena has an adrenaline-fuelled obsession with performance. It feeds off results. Success in inseparable from profitability and speedy returns, and such intense pressure results in a ‘survival of the fittest’ culture of leadership.

So while the upside may be lucrative, it is balanced on a knife-edge. Financial prosperity and positive audit outcomes are non-negotiable, and faltering on either front can result in swift repercussions.

Competing imperatives

PE-backed firms are premised on growing and generating profit. When such firms enter funded training markets, the stakes morph considerably. The human element of shaping future generations is as crucial to ITP providers as financial stability and an effective business model.

Accordingly, a number of recent articles about hiring on our website are written with new FE sector entrants in mind. They aim to find a balance between these too-often competing imperatives. What to do when improving organisational agility meets the challenges of career progression and fluid leadership. How improving structures, cross-departmental opportunities and rotational tasks fosters growth. How upskilling employees bolsters capability and contributes to dynamism.

A recurring theme is that the churn in senior leadership can be avoided with mindful appointment strategies and careful workforce planning. Key is appointing sturdy senior teams that mitigate risk while driving consistent, effective growth. In my experience, a collaboration of the right sector expertise and a PE firm’s own team works best.

It’s not all churn and burn

If the downsides are properly mitigated, PE-backed firms can bring a lot to the table. Many are predicated on profound impact and speedy advancements. With fewer layers of leadership and a lean structure, employees tend to have more exposure and responsibility. Employees that have a greater impact are typically happier at work.

Greater autonomy offers freedom to make decisions without wading through layers of bureaucracy – an often-touted criticism of working in FE colleges. Quick decision making, freedom to lead and the exhilaration of high growth present a sense of fulfilment not found elsewhere.

And of course there is the prospect of greater financial rewards – a honey pot that attracts quality talent. For those who can tenaciously ride the tide, the rewards (both monetary and developmental) are plentiful.

Implications for learners and beyond

As this trend has gradually seeped into the training provider sector, the ripple effects have already reached learners. A financially robust and quality-led institution can invariably offer better resources and upgraded training prospects – a potential win for learners. At least in theory.

However, the uncertainty associated with PE-owned firms casts a long shadow. The urgency to deliver financial results could risk eclipsing the core purpose of quality education.

Worse, it can eclipse any education taking place at all. We’ve already seen seemingly ‘cut-throat’ actions including liquidations, mass redundancies and market exits.

With frozen funding bands, unpredictable bid patterns and the rising cost of money, there is a huge pressure for investments to make a return.

Given the high-stakes nature of PE investments, there’s an inherent possibility of more volatility with both successful and unsuccessful outcomes. Striking that difficult balance between financial ambition and educational goals is trickier than ever.

For now, while appreciating the accelerated progress that comes with PE backing, it’s prudent to shield our learners, staff, and careers from potential risks. We must approach this new frontier not with fear but with an informed perspective.

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