Study Group is now owned by its third private-equity investor and each experience has left it in a stronger position.
In July 2010, CHAMP Private Equity exited its investment in global education provider Study Group in style. Together with co-owner Petersen Investments, it sold the group for $660 million to Providence Equity Partners—an American private equity firm that is one of the world’s biggest education investors.
This was the second time CHAMP had bought, improved and sold the business to a global giant. In late 1994, CHAMP predecessor Australian Mezzanine Investments bought a vocational education and training business called Education and Training Australia, and partnered with former Pepsi-Cola executive Arvid Petersen who became the CEO. After a management overhaul and some bolt-on acquisitions, AMI sold its share of the business to the Daily Mail Group in 1997.
Education and Training Australia became the Australian division of Daily Mail’s Study Group. Petersen stayed on with the business selling his share in 2003. When Daily Mail later decided Study Group wasn’t a core holding and auctioned the business, Petersen, who had stayed on the board, approached CHAMP Private Equity and together they came up with a proposal. CHAMP re-acquired the business in 2006 as the majority owner. Petersen also made a meaningful investment and became the executive chairman.
Study Group was a significantly more global business than Education and Training Australia. But Petersen says actual growth had been minimal under Daily Mail and he and the team at CHAMP saw opportunities to expand further, particularly into university partnerships and the preparation of international students for study abroad.
It was a smaller division within a large global business, and like you see so often, some of those divisions just don’t get the attention and don’t deliver the results they should,” Petersen says. “So from our perspective, when we bought it in 2006 from Daily Mail, we saw it as an underperforming asset in a growth sector.”
Petersen says he has always been philosophically aligned with CHAMP. “As owners, they come to the business as board members with a real desire to work with the management,” Petersen says. “They have a good balance of being hands on but allowing management to get on with running the business.”
The first step was to bring in some new talent. Heith MackayCruise, the former chief executive of ACP Media New Zealand, was appointed CEO.
Together with CHAMP, the Study Group management team worked on a strategy that would identify unprofitable products and services and focus the company on a few key priorities for growth.
The English training and placement businesses, which Petersen saw as highly commoditised, were scaled back. Some schools were closed and some programs were cut, including a vacation business running two- and three-week programs in the United States.
“We took the focus off those,” Arvid says. “A lot of what you do in business is allocating resources. There’s only a finite amount of resources, and we were making sure [they] went to the right opportunities.”
Arvid and CHAMP saw huge potential in public-private partnerships with universities and developed a business model that involved running programs licensed from them.
“Key to this was CHAMP’s networks in Australia, Asia and Europe and it was particularly good at opening doors in Australian government circles.”
Key to this was CHAMP’s networks in Australia, Asia and Europe and it was particularly good at opening doors in Australian government circles. Arvid recalls that it facilitated an introduction to former NSW Premier Nick Greiner. “Education is a highly regulated sector and developing government relations is very important,” says Arvid.
By the time they sold the business to Providence, the company had partnered with dozens of universities around the world. Its programs prepare international students for study abroad by offering English training and foundational skills.
Study Group also invested more in sales and distribution, strengthening regional offices around the world and putting more effort into recruiting students.
“The one dynamic we see everywhere, in the Western world especially, is that public universities are under enormous financial pressure,” Arvid says. “They are all looking for ways they can generate growth through enrolments or improved distribution of their services. That’s one thing I’ve noticed in the 20 years I’ve been involved in this private-for-profit education... the public/private partnerships opportunity. The shift of the private sector working with the public has been huge and I think it will continue to grow.”
Apart from its strategic advice and financial backing, CHAMP also brought to the table financial management and M&A skills.
“With a lot of these private-equity opportunities, we do need to look at adding bolt-on acquisitions and ultimately a divesture, and CHAMP brought good skills in M&A,” Arvid says.
The CHAMP team pursued and completed two useful bolt-on acquisitions for Study Group—the Australian Institute of Applied Sciences and the Australian College of Physical Education.
Private equity typically has the benefit of seeing a lot of different businesses and industries from the inside, generating a wealth of experience in strategic thinking. CHAMP quickly introduced key measures that brought a stronger performance culture to the organization, Arvid says.
He believes the private-equity model is effective in aligning the objectives of management and executives with those of shareholders.
“I think that’s probably pretty unique to private equity, this sense that they want key management as shareholders,” Arvid says. “It’s not just CHAMP. I think all private equity are pretty good at that, that’s fundamental to their model.
“In listed companies, you sometimes see that shareholder value doesn’t move but the executives are earning extraordinary bonuses. But in private equity there’s good alignment, they are not working to different incentives to shareholders.”
Ultimately, CHAMP led the exit process, from finding the right long-term owner and appointing advisers, to preparing the company and selling it to Providence.
At the time of the sale, Study Group had more than 55,000 students at 38 campuses in Australia, New Zealand, the United Kingdom and the United States. Revenue, staff numbers and locations around the world had all grown since the CHAMP purchase.
CHAMP managing director Ben Sebel says he watched Study Group change from having a “sleepy, collegiate company culture” into a performance-minded business with strong future prospects.
“One of the misnomers about private equity is we just squeeze the lemon, cut expenses and sell the business,” Sebel says. “But [at Study Group] the growth wasn’t about cutting. It was backing smart growth initiatives and enhancing the quality of the business. The business we sold was a substantially better quality business than the one we bought.”