Private sector growth in Australian higher education

This guest blog is written by Andrew Mills – the founder and CEO of Roland Investments, which provides investment and consulting advice to the education and finance sectors. He was previously the longest serving senior management executive for Study Group (17 years), a global private education business. He is currently based in Sydney Australia.

The education sector in Australia has always been of significant interest to the investment community, but the last 5 years have seen extraordinary interest in the sector. Particularly around Vocational (VET) and Higher (HE) Education.

The Australian education revolution will drive growth as it forms a key strand in the economic development of a country that needs to diversify its reliance on mining.  There are four key drivers of growth in the sector.

  • Skilling Australia for the future – transition to a knowledge based economy
  • Population and demographics – growth in population and a working population of which 45% currently have qualifications below certificate III
  • Increased participation in VET and HE education – driven by the widening salary gap of graduates and the rapid growth in mobile and broadband technology
  • Government FEE HELP, a contingent student loan scheme – policy initiative of 40% of 25 to 34 year olds achieving bachelor degrees by 2025

From an investment perspective the sector is very attractive.

There is a significant shift away from the state to the private sector. A shrinking government purse, student demographics, efficiencies and the use of technology that can be delivered in the private sector have been instrumental in this shift.

Investors like education. The business has a low capital investment (certainly when compared to other asset intensive business such as mining, transport etc).

There is good visibility on future trading with known student intakes and start dates, which is further enhanced by strong cashflow. Students generally pay up front with costs of delivery following behind the fees.

The growth in private provision is not only centred around the provision of education. Increasingly public (and private) providers are outsourcing their enrolment management and this can be everything from lead generation, through to enrolment conversion and student retention activities.

There is also a widening selection of businesses that are looking to provide analytics through big data so that educators and students can better understand the relationship between study and outcomes. Industry is also increasingly looking to have better prepared candidates that they don’t have to retrain and rewire (at significant cost) to make them “fit for business purpose”.