The corporatization of Indian campus
In 2019, a Netherlands based group Global University Systems(GUS) quietly moved into India by taking over the asset of Laureate in the country. The deal reported in the range of $150-200Mn, took over the prestigious university UPES and Pearl Academy. The degree remained Indian, under the non profit structure. The operating platform went over to the Netherlands based for-profit education group. For a sector where the government regulations define only non-profit structures to hold the recognition, affiliation and the degree giving power, the GUS-Laureate deal was a lighthouse deal to open the eyes of founders and entrepreneurs to higher education.
Today, this deal is not a blip. The University of Southampton opened its gate in the last couple of years in Gurugram. Oxford International Education Group built, invested, recruited and runs this campus in India. OIEG is a private company of the UK and has no known relationship to the University of Oxford. It is a well established education company that has been running pathway programmes, English language training and has partnerships with some leading universities of the UK. One of their newest business unit is to partner with universities in UK and help them establish in India. With the recent regulations for foreign universities in India opening up, they were the first ones to smell the opportunity. I presume they already had the UK partnerships and convincing them to invest on their behalf in the most populous country of the world was a no brainer. The Eruditus deal with foreign universities and establish them in India has been doing the rounds, as disclosed in a recent podcast by the founder, Ashwin Damera. There is a slight difference here and it comes out due to the partiality of the regulator. You can open a foreign university in India under a private limited structure but cant do the same with a domestic university under the UGC.
The domestic university in India should be crying out loud. And I have heard the noise against this partiality a number of times. But this is India and the seasoned businessmen who have invested crores of rupees into building infrastructure for a private university will not sit idle. And not so will the Edtech founders who have been working closely with these owners (Like me!) The point of contention is simple, foreign universities get a highway to get corporate money into a private limited structure. And the domestic universities are under a trust and Supreme Court has clearly ruled that domestic universities can earn a reasonable extra but not profiteer from it. The extra has to be ploughed back into education. There are a few playbook that are doing the round. And founders are having more calls with lawyers to understand the right contract structure for such a deal.
There are two or three doors through which corporate investment can be used in the domestic university ecosystem. The first one is the ManCo (Management Company) and the trust relationship. ManCo, generally Edtech companies, sign 30 years lease with the trust and in exchange manage the curriculum, content, recruitment, admissions, tech and everything that comes under managing the university. The trust still keeps the regulatory requirement, but only as a skeleton. The degree giving power, the fee collection system, the affiliation and accreditation. The ManCo pays the trust an annuity, generally a little more than what the trust was earning net at the time of takeover. The better playbook here is the Alt School model. Where the founder establishes the Alt School, a recognised, viable brand in education and then runs it as a ManCo and signs up with an existing trust.
The other model is the Propco, where the trust pays a lease to the propco which owns the land and the infrastructure. The trust has the university recognition and the accreditation. The propco is easily listed and the international investors acknowledge the healthy permanent lease that the propco has. REIT has shown the way and a well recognised instrument in the stock market. Edtech founders dont really like this path, it’s capital intensive, requires investment in land and no foreign investor will allow it on their dime. This is an opportunity that large land bank owners can play on. There are 63+ Alt school in India and many of them would want to establish universities, as the Scalar and Masters Union ambitions show. I am sure there would be someone thinking to establish a REIT that leases out to 10-15 universities in the country for the next thirty years. And list it on the stock market. The Good Host platform did the same with the hostels.
This is not something that the higher ed players invented. This story has been unfolding in the schools of India. The schools are also constrained by the same non profit regulations. But that didnt stop the Indian entrepreneurs. K12 Techno School case study is a legend in India. They operate the Orchid school brand and you had the best of the PEs in India rushing to invest in them. KKR took a step further. Encouraged by their dealing in malls in India, moved in fast to acquire Lighthouse Learning and now entails more than a thousand pre-schools and 80+ schools. Other examples include NSPIRA Management services of Narayana.
The story of Good Host Spaces is worth telling in full because it shows how patient this capital is. In 2017, Goldman Sachs began backing a platform built around the hostels of Manipal, about 6,000 beds, in a deal of ₹250 to ₹300 crore. HDFC bought a quarter of it for ₹70 crore in 2018. By 2021 the platform ran 18,000 beds across Manipal, O.P. Jindal, and Shoolini, and Warburg Pincus had bought out HDFC's stake. Then, in October 2023, Alta Capital bought out Goldman and Warburg together for ₹2,700 crore, the largest student-housing transaction India has seen, taking charge of roughly 25,000 beds.Read the structure underneath: on-campus residential blocks, operated under long-term agreements with universities. The universities teach. The PropCo owns the beds and collects through decades-long contracts. Stanza Living raised from Equity International for the off-campus version of the same trade.A business daily once projected the investment potential of Indian student housing at ₹2 trillion.I used to think that number was promotional. I no longer do.
There is a lot that is going on under the hood in the higher-ed full university management space. And new playbook is being written by founders. And the regulations opening up has given oxygen to the fire. I can predict that by 2047, there will be six to seven large management companies each operating 10-12 universities in India. Managing 12000 students each in their managed campuses.