Private Equity for Ancillary Services to the Higher Education Industry

By Mitch Leventhal and Ina Tang

In an era of tight budgets, institutional leaders in higher education (and post-secondary) are increasingly pressured to improve operational efficiency and reduce expenditures.  To this end, colleges and universities are tapping into private sector vendors to provide ancillary services which had once been delivered in-house, ranging from bookstores, administrative software solutions, distance learning technologies, marketing and student recruitment.

This post-secondary sector is enormous. The National Center for Education Statistics reports a total of 4,706 institutions in 2012, serving 21 million students in the United States. This sector – excluding the network of ancillary service companies which it supports – has over $400 billion in annual revenue. The enormity of this industry has attracted high profile investors into the for-profit college sector.

As outsourcing has become more widely accepted, investor attention has started to shift toward companies that provide ancillary services to both traditional and for-profit higher education institutions. But unlike for-profit schools, educational technology companies and MOOCs which have received intense media attention, less glamorous companies which provide back-end and support services to schools, colleges and universities have largely remained out of the limelight.

Our study of private equity companies and their eduspace investments has started to clarify the role of private equity in this ancillary services sector, which we are calling the Higher Education Services (HES) sector. Three types of HES companies are dominating the interest of equity investors at this time.

First, marketing and recruiting solutions.  Colleges and universities are increasingly driven to increase enrollment – both domestic and international – to meet financial goals, but global marketing and recruitment, in particular, has high costs and requires specialized expertise. All but the most elite institutions must resort to private sector providers to serve their global recruitment needs.  And some institutions, which formerly serviced their own needs in-house, are finding that specialized firms have the ability to perform the same tasks better, and at less cost, thereby freeing up resources for other strategic needs.

Earlier this year, New York-based private equity fund Leeds Equity Partner invested over $100 million for 25% of INTO University Partnerships Limited, which enters into long-term contracts with universities around the world to increase student capacity and support greater mobility for international students.  This large bellweather investment signaled the seriousness with which informed investors consider the education services industry.

Second, higher education administrative solutions.  These companies provide administrative solutions to colleges and universities and are flourishing because they enable schools to forgo or cut back on their information technology services or infrastructures, which are very costly. These costs are particularly onerous for smaller institutions which have limited bargaining leverage and who have difficulty achieving economies of scale.

One example of such an investment is Ellucian. In 2011, Hellman & Friedman, a leading private equity investor in the vertical software and information services industries, acquired SunGard Higher Education businesses from SunGard Data Systems Inc., for an aggregate cash purchase price of $1.775 billion.  The private equity firm combined SunGard Higher Education with Datatel, an existing portfolio company, into a new company, Ellucian, which offers administrative along with other technology solutions to higher education institutions. Ellucian now has over 2,400 institutional customers in 40 countries.

Finally, distance learning solutions. These companies provide institutions with the technologies, infrastructure support and resources to transform their existing courses for online delivery. Some colleges find the need to offer their courses online to reach a broader audience as online degree and certificate programs become more popular. Others – the State University of New York, in particular – are initiating strategies to use distance education to accelerate and improve completion rates for traditional students. Still other institutions are experimenting with MOOCs, or massive open online courses, to extend their reputations globally, while generating foreign exchange earnings. Institutions pursuing these strategies work with service companies such as Echo360, The Learning House, and Academic Partnerships to convert their traditional programs into an online format and market them to appropriate constituencies.  These service companies have all successfully raised capital from private equity investors.


The flow of private equity into the HES sector is an acknowledgement and affirmation of the rapidly growing trend of outsourcing higher education support services. Faced with declining budgets, colleges often find efficiencies by focusing on their core missions rather than managing business processes.  They outsource units that fail to provide the level of service needed, provide the service at too high a cost, or cannot adapt to changing market conditions, such as the globalization of higher education.  Given that colleges and universities are searching for more innovative, cost-effective and sustainable ways to deliver their services, it is imperative that entrepreneurs and investors work together to create solutions that will benefit the higher education sector.

@ 2013 Mitch Leventhal and Ina Tang