THE ART OF THE DEAL
13 May 2020
Inspired Education recently acquired a non-profit independent school in Australia in a first-of-its-kind deal that rids the institution of charitable status. Nadim Nsouli, founder and chief executive of the high-flying private schools group, tells Josh O’Neill how and why he did it.
There’s palpable stigma attached to the charitable status afforded to many independent schools across the world. This year in the UK, for instance, a heated debate has been ignited over the very existence of private schools, the majority of which are owned by foundations and are thus not-for-profit. So scathing are critics on one side of the fence that the opposition Labour Party has pledged to “abolish” private schools entirely, and with them their charitable status that exempts them from paying VAT on tuition fees.
Providing the general sentiment around private schooling isn’t overly sour in any given nation, one way to gain distance from discourse around charitable status is to relinquish an institution of it. Inspired Education, the trailblazing forprofit private schools operator, did just this when it acquired Reddam House Sydney, a reputed independent school located in the Australian city, in late September.
Prior to the transaction, the value of which was undisclosed, Reddam House Sydney received A$5 million (£2.6 million) a year in government subsidies, as it was classed as a charitable, non-profit entity. This funding accounted for 15% of the school’s overall income (A$34.5 million), while the rest was derived chiefly from “fees, charges and parent contributions”, according to records held by ACARA, a reporting authority.
The deal marks the first-ever conversion of an Australian charity-backed independent school into one that is profitseeking. The country’s A$29 billion private school market comprises more than 2,600 Catholic and independent primary and secondary schools, which collectively educate around 1.3 million students, or 35% of the school-age population. Almost all non-government schools operate on a non-profit basis and receive state subsidies; seldom do any come up for sale. Consequently, international private school operators have failed to gain so much as a toehold in Australia’s private school sector, explains Edward Slade, founder of Schoolhouse Management, an education advisory firm based in Sydney. Until now.
“Most international school groups look at the market and want to make an acquisition. The issue here [Australia] is that there are no private schools for sale,” he says. “There are a few for-profit schools, but they have been linked mostly to pathways providers, as a step for international students on their way to university in Australia.
“While almost all states, with the exception of Victoria, permit for-profit education, no for-profit industry has grown up in Australia. It is the only major private school market where you will not find Nord Anglia, ISP, Cognita, etc. This is why Reddam becoming a part of Inspired is actually quite big news.
“I think this is a tremendously exciting announcement. It shows to the sector that a top school like Reddam can be run without government subsidy, and still be one of the best-quality and highest-achieving schools in New South Wales.
“There have been international groups that have looked at the sector in Australia, but none have yet made a move here, usually due to concerns about whether they can compete as for-profit entities against heavily entrenched not-for-profit traditional schools.
“Reddam proves it is possible.”
So how did Inspired do it? The secret lies in its short yet closely intertwined history with the Reddam House group. The Reddam House group was founded in South Africa in 2000 by Graeme Crawford, a renowned educator. The following year, Crawford launched Reddam House Sydney, the group’s first school outside South Africa.
Inspired was founded in 2013 by its chief executive Nadim Nsouli, a former partner at Providence Equity, a US-based buyout house. Nsouli got his platform off the ground by purchasing the Reddam House group, which at the time comprised four schools in South Africa. Under the deal, Crawford became Inspired’s group president, a post he has held since. Inspired’s growth over the past six years has been meteoric. It now operates 64 high-end schools
in 22 countries, which collectively cater to some 45,000 students. Under Inspired’s ownership, the Reddam House group has grown to encompass 14 schools and early learning centres situated in countries across Europe, Africa and Asia-Pacific.
Reddam House Sydney, however, was never part of the eponymous parent group. Prior to being bought by Inspired, it was a standalone entity owned outright by Reddam House Limited, an educational foundation, into which surpluses generated by the school were reinvested. One report wrongly stated that “a for-profit business, Reddam House Holdings”, owned the school’s campuses and leased them “to not-for-profit Reddam House Limited”. In fact, the buildings were owned by a private landlord, which will now lease them to Inspired under the new arrangement. Inspired already owned three Reddambranded early learning centres in Australia under an earlier deal struck with Crawford in 2015. Again, these were unaffiliated with the school in question.
To acquire Reddam House Sydney, Inspired of course needed the blessing of the foundation’s board of directors. For most educational charities, however, the prospect of giving up a profitable, top-class school would probably be undesirable. This is why in the UK, for example, usually only charity-backed independent schools in a state of financial flux are handed over to private proprietors. After all, why would a foundation want to offload an asset that pays a healthy dividend to its charitable cause?
But Inspired had history on its side. Reddam House Sydney, despite having grown up apart from its ‘sister’ schools in other corners of the globe, was born from the same educational ethos pioneered by Crawford. And so “it simply made sense” for the school to join the Inspired network, Nsouli tells this publication, so that it could “share best practices, exchanges and partnerships it had been missing out on” as a standalone operation. Inspired principals meet regularly to share teaching methods and expertise. The group’s schools also run global student exchange programmes and summer camps, and have strong links with universities across the world.
“Other than sharing a similar name, Reddam House Sydney had no relationship with the other Reddam schools,” says Nsouli. “Usually, it would be extremely difficult to convince a foundation of the benefit of allowing a school [it owns] to join an international schools group. But in this case, it truly was a natural fit.
“The foundation understood the logic.”
Although not academically selective, the prestigious Reddam House Sydney is one of the highest ranked schools in New South Wales by measure of results. Last year, it was the only non-selective school to be ranked in the top-10 in the state by measure of Year 12 student performance. High standards come with the price tag to match: annual tuition fees for a Year 12 student come in at A$32,000 (top-tier private schools are classed as those charging upwards of A$20,000). There are 1,200 students at the school.
Acquiring Reddam House Sydney “was a long process,” says Nsouli, as the foundation required an independent opinion on whether it should let the school go and at what price. Under the final agreement, Inspired bought “the school’s assets: the students and teachers,” Nsouli explains, as opposed to shares in the business. As mentioned above, Inspired will continue to pay rent on the campuses. King & Wood Mallesons, the law firm which advised Inspired on the transaction, declined to comment for this article.
Being the guinea pig for an untested deal structure will inevitably land Inspired in the industry limelight. And Nsouli wants to quash any potential misinterpretations that Inspired could, or would, line its pockets with proceeds from subsidies. “People might wonder whether we’re going to profit from past – or future – subsidies. We’re not. The foundation is being paid and will continue as an educational charity. The school will no longer be entitled to any sort of subsidy; Inspired will absorb any associated costs and fees won’t change. We want to be 100% transparent and have zero overlap between the foundation and Inspired.”
It’s been a whirlwind year for Inspired. In May, private equity house Warburg Pincus took a minority stake in the business, valuing Inspired at over £2 billion. The same month, Inspired bought ACG, New Zealand’s largest private school chain, for $500 million. In the four weeks leading up to its purchase of Reddam House Sydney, Inspired bought a school in Mexico and another in Oman, signifying its first steps into the latter market. And last month, it absorbed King’s Group, a private school operator with 10 sites situated in Europe and Central America. Industry sources say Inspired’s annual earnings exceed £130 million.
The Reddam House Sydney deal will be seen as a litmus test for whether other charity-backed independent schools in Australia might look to replicate its structure, should buyers come knocking. “People will say, if these guys can do it, why can’t everybody else?” says Nsouli. But he thinks this unlikely, largely due to bureaucracy within educational foundations, and because so many of them have deep-rooted religious ties: around 20% of all students in Australia attend independent Catholic schools; many other private schools are linked to additional Christian denominations and various faiths.
“I don’t think it will catalyse further deals” of this kind, he says, noting that, at present, “we certainly aren’t planning” on doing more of the same.