Universities could be in private hands 'in six months'

Mooted change in legal status may allow investors to obtain degree-awarding powers. John Morgan writes

十月 13, 2011

Credit: Report Digital
Intellectual property: ladder firms buying a stake in an institution view degree-awarding powers as valuable intellectual property

A private equity firm or private higher education provider will buy a UK university in whole or part "within the next six months", according to a sector legal expert.

The prediction by Glynne Stanfield, a partner in the education group at Eversheds, comes as government documents reveal that a US private equity firm, Warburg Pincus, has twice met with David Willetts, the universities and science minister.

Mr Stanfield, who was lead partner on the merger between the University of Manchester and Umist and is company secretary of the Russell Group, highlighted the government's technical consultation on the recent White Paper proposals, which closes on October.

The consultation document repeats a passage from the White Paper: "It has been argued that it would be helpful to institutions to ease their ability to convert to a legal status of their choosing - for example, to make it easier for them to attract private investment."

The document then poses the question: "Would you welcome legislative change to make the process of changing legal status easier?"

Mr Stanfield said private equity firms or "trade buyers" (established private higher education providers) could buy out a university in its entirety and thus gain its degree-awarding powers.

"You can offer a degree under any name. If you bought the University of X, you might offer the degree under the name of the University of Y," he said.

"If it was bought by a well-known brand - a trade buyer or private equity buyer - they can use that name or any other name."

More likely, Mr Stanfield said, a private equity firm or trade buyer could buy a stake in a university, providing the institution with working capital in return for using its degree-awarding powers overseas, for example.

Private buyers would want those degree-awarding powers for use overseas for "online and distance education", Mr Stanfield said. "They would think there is a huge market in that, particularly in Asia and the Gulf."

The firm buying a stake would see the degree-awarding powers as an intellectual property right, Mr Stanfield said. "What private equity wants to do is take that current IP right and brand and do more with it."

By buying a university in whole or part, a private firm could circumvent the established process for winning degree-awarding powers, which are granted by the Privy Council on the advice of the Quality Assurance Agency.

Currently there are only five private providers with degree-awarding powers.

A university selling a stake to a private buyer gets "increased working capital to get better staff, better infrastructure. Its dependence on the taxpayer is lessened," Mr Stanfield said. The university would go "from being seen as a public sector body to a private sector body".

Asked whether whole or partial buyouts by private buyers were likely in the near future, he said: "I would expect to see something within the next six months, maybe sooner. There are a number of private equity buyers and trade buyers who are in talks with British universities about doing various things. There is no one model."

Royal Charter

Mr Stanfield said private investment could be attractive to "lower-ranked institutions", particularly those "with a capital need".

He added: "I don't think it is just the post-92s. It is those institutions that are going to struggle to charge a fee in excess of the current cash they get."

But Mr Stanfield said the "challenge for those universities that actually wanted to dip into the private sector is they may have to reconfigure their legal status".

He said UK universities break down into five different legal statuses, with "companies limited by guarantee" able to access private investment most easily.

Universities with a Royal Charter could not currently attract such investment. But Mr Stanfield said he would not want to give the impression that companies limited by guarantee were "the only ones that could attract the investors - others would have to change their legal form in whole or part first".

Private equity firm Warburg Pincus - the biggest stakeholder in Bridgepoint Education, which operates Ashford University and the University of the Rockies in the US - attended round-table meetings with Mr Willetts in December 2010 and January 2011.

Private providers such as BPP, Laureate, Pearson and ifs School of Finance were also present at both meetings, logs of external meetings published on the Department for Business, Innovation and Skills website reveal.

Warburg Pincus declined to discuss its interest in higher education in this country when contacted by Times Higher Education.

Barry Gardiner, Labour MP for Brent North, who has asked Mr Willetts a series of written parliamentary questions about his contact with private firms, said: "If we are looking at private equity coming into higher education, then really the concept of public benefit, public good, public service has gone out of the window."


Good to talk: but details of minister's meetings with private providers are redacted

The government has refused to release papers from meetings between David Willetts, the universities and science minister, and private higher education providers.

The number of meetings between Mr Willetts and private firms in the run-up to the higher education White Paper - which paved the way to deregulation when it was published on 28 June - is revealed in meeting logs published on the Department for Business, Innovation and Skills website and in answers to written parliamentary questions.

In total, Mr Willetts held 12 meetings with private higher education providers between June 2010 and June 2011.

The meeting logs on the BIS website also show that Nick Hillman, Mr Willetts' special adviser, had lunch with BPP in August 2010 and December 2010.

Papers obtained by Times Higher Education under the Freedom of Information Act show limited detail on the ministerial meetings. On 10 May 2011, Mr Willetts met two top executives from US giant Apollo - Charles Edelstein, CEO of the Apollo Group, and Timothy Daniels, president of Apollo Global.

The meeting was also attended by Richard Simmons, the chairman of BPP University College, and Carl Lygo, its chief executive. BPP is owned by Apollo.

One passage from the meeting note reads: "Apollo stated that the most important feature of the US model is that money follows the student. Money following the student allows for a diverse set of HE institutions as students want different things and therefore allows for different HE institutions to flourish."

But the Department for Business, Innovation and Skills redacted the bulk of the notes (with three out of four redactions on the grounds of "commercial interests" for the firms) as well as completely withholding minutes and papers from other meetings with private providers.

This decision was made in order to "preserve the ability of the department to receive broad-based advice from stakeholders to inform the formulation of government policy," BIS said.

Mr Willetts' meetings were with BPP/Apollo, Kaplan UK, Kaplan Europe, Pearson (four meetings, including two dinners), Education Management Corporation and Laureate (two meetings).

There were also two larger round-table meetings in December 2010 and January 2011.

Asked if the number of meetings was appropriate, a BIS spokesman said: "Ministers meet regularly with interested parties to discuss policy issues."



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