The opening of their capital allows establishments to finance their development. At the risk of divergent objectives.

Each sector has its soap operas. For a little over a year, the small world of business schools has been passionate about the adventures of EM Lyon, a venerable institution transformed into a public limited company, then marked by the entry into its capital of the Qualium fund and Bpifrance, one year ago. Private business schools have already been found by private equity funds, but this is the first time the “bride” has been a “top 5″ establishment. If the situation has aroused so much emotion, it is also because it raises more broadly the question of the financial future of these schools and the possibility for some of them to follow the same trajectory.

The reduction in the apprenticeship tax and the drying up of aid paid by chambers of commerce are weighing heavily on the finances of business schools. The fall in income from continuing training and tuition fees for foreign students linked to the health crisis has not helped … However, schools believe that they need more than ever to invest to recruit teacher-researchers, build campuses abroad or have efficient information systems.

The general manager of Grenoble Ecole de management, Loïck Roche, has calculated that on average a school will have to find 50 million euros over five years, just to continue its digitalization, which has become crucial. “Faced with the obsolescence of old economic models, all are now seeking to open up to private investors, and in particular funds. ”

Recent craze

After ignoring it for a long time, the funds have for six or seven years shown a real enthusiasm for French private higher education. The sector, which has demonstrated its resilience during the health crisis, has it all: an increasing number of students, predictable and regular income in the form of tuition fees, and an image of general interest that restore their image.

In recent years, transaction prices, which mostly took place in the 100% private sector, have skyrocketed. Britain’s Cinven is said to have bought up the Inseec U group, which has 16 schools, for 800 million euros in March 2019. An overestimated valuation to believe the specialists. “The buyers were a little disappointed with the numbers they found, and instead of going for a big development, they will start by restructuring first,” said a source familiar with the matter.

What will happen to consular schools (dependent on chambers of commerce and industry)? The most prestigious schools, which enjoy a strong brand, are prime targets. But the significant constraints in terms of accreditation and the multiplicity of products on which a large part of the margin depends make their management complicated. “Mid-range schools combine the constraints of the best, but without a strong enough brand, analyzes Pierre Pariente, former president of the schools of the Laureate group. For funds, it is easier to target low-end schools which require strong marketing but which have fewer constraints. ”

Help intelligently

Anxious not to insult the future, a number of school principals have watered their wine on the subject, but caution remains. “The funds could help some schools weakened by the crisis to survive, provided that this is done intelligently,” said Skema BS director Alice Guilhon.

Like most of her colleagues, the President of the Chapter of Management Schools does not want “to be run by financiers who do not know the business.” The logic of a fund, which invests for a limited period – four to seven years – in a company whose growth it will support with the aim of substantial added value upon exit, runs counter to the culture of the community. And the long time that education takes. Jacques Chaniol, who headed the Inseec Business School from 2014 to 2016, remembers with amusement “this partner who did not understand that we cannot turn around a school in one year, while the production and development of a master’s degree is at least five years ”.

Even if the fund enters with the promise to respect academic excellence, schools fear that it will opt at the time of redemption for a strategy of cost reduction and growth by volume, to the detriment of the quality of training and the research, essential to maintain its rank and its labels (accreditations, master’s degree, etc.). The financiers know this. “Education is a sector where we develop turnover, not where we cut costs,” notes Martine Depas, mergers and acquisitions advisor at Financière de Courcelles.

“EM Lyon is not a cash machine and is not intended to be one. It is the school’s academic value, the maintenance of its accreditations and its rank in national and international rankings that will give it its intangible and financial value ”, affirms Isabelle Huault, the new director of EM Lyon, former president of Paris-Dauphine. Qualium claims to want to give the school the means to achieve its ambitions: it aims for growth based in particular on the creation of new training courses for an international audience, and through possible acquisitions of schools.

As a pledge of good faith, didn’t he pledge to stay for at least five years, and to forgo his dividends? “An unusual compromise,” says its president, Jean Eichenlaub. “The millions invested by the funds allow schools to grow, if they have a defined and adapted strategy, which is not always the case. Ultimately, the lack of resources could become penalizing for those who do not benefit from them, “said Pierre Pariente.

Other types of investors

Beyond cyclical funds, business schools would like to attract longer-term investors: family funds and other classic industrialists. Some of them, led by Grenoble, rely on the status of consular higher education establishment (EESC), created in 2014, to bring such players into their capital. The Paris-Ile-de-France Chamber of Commerce, supervised by HEC or ESCP, is working on a holding company project that will allow stakeholders to take part in its training courses.

But the EESC’s formula that prohibits a shareholder from owning more than 33% of the shares and receiving dividends is turning investors off. Bpifrance, which positions itself as a privileged investor, has invested in seven schools or groups of private schools. Among them, Galileo Global Education, one of the European leaders, also owned by a consortium of institutional investors, including the Canada Pension Plan Investment Board and Téthys, the Bettencourt family fund. Galileo is often cited as a “successful” example of collaboration between schools and funds. He does not hide his interest in business schools.