Thursday February 15, 2024

In an article first published in The Bursar’s Review, Restructuring Advisory Partner, Philip Watkins, explores how the macroeconomic climate is impacting the independent education sector

Independent schools form a key pillar in the communities they serve, and local educational institutions will always be of paramount importance to an area’s prosperity and attractiveness. But, largely due to the macroeconomic climate of recent years, more and more schools find themselves considering turnaround, merger or sale strategies to avoid the risk of closure.

Myriad challenges

There are parallels to be drawn now with the aftermath of the financial crisis, when restructuring support was provided to a greater number of schools as they grappled with the rising cost of delivering the standard of education expected of them and the affordability of fees for parents – particularly at smaller schools. Over the past few years, school governors and leadership teams have faced similar and additional challenges; the rising cost of operational staples like food and energy and, especially in the wake of the pandemic, recruiting and retaining quality teachers who may have considered leaving the profession altogether. Against this backdrop, there are several steps schools in difficulty can take.

Turnaround

When a school that has endured a period of poor financial performance moves into a phase of financial recovery, it’s called a turnaround. This is most often the most desirable outcome for governors – yet a successful turnaround will require time, funding and a significant proportion of operational and financial change.

Charitable merger

If a turnaround is not feasible, a charitable merger – where a school is merged into another, better performing school – may be the next best course of action. This of course enables the school to maintain its charitable status, and will typically see it merge with a stronger school that is more resilient and therefore more future-proof in terms of its size, demographic, pupil numbers and market share. This also presents an opportunity for larger schools to improve their own long-term viability through increased pupil numbers, a larger estate and consolidation of cost.

Sale to private sector

The independent school’s market is highly fragmented, and a number of privately backed school groups will be looking to capitalise on the challenges that are faced by charitable trusts that are not able to maintain their independence or charitable status through a turnaround or merger. Such groups often employ a strict commerciality and are well-practiced in turning around underperforming schools enabling them to continue to provide education rather than closure.

Solvent closure

While still a closure, this option means a school can close but in a manner that takes into consideration the best interests of parents, pupils, teachers and other staff. This will see the school remain open and operational until the end of the school year, and all staff properly remunerated ahead of closure.

Don’t delay in seeking guidance. The earlier support is sought; the more options governors and leadership teams have.

First published in The Bursars Review in July 2024.