Private Equity Owned Higher Education Institute with historic and ongoing challenges creating multiple business survival challenges.
Background
Business was the largest private sector HE provider which had more than 5,000 students and an annual turnover of c.£40m.
I was introduced into the Business by the new Chair and PE owner on the basis that the group was showing early signs of stress, a significant turnover in CFO’s and operational management was under scrutiny.
Banking covenants were under threat, a refinancing agreement was likely and to conclude this an IBR would be commissioned by the Lenders.
My role was as a Turnaround Director/Interim CFO initially for 6 to 9 months however during the assignment multiple attempts to recruit permanent CFO’s/Finance Directors fell through due to various reasons and hence necessitating my continuation.
Key Challenges (Summary)
An immediate cash flow hole of c.£1.5m was identified along with a repayment due to the Student Loan Company of c.£1.2m. This had not been built into cash flows.
The Bank required advisors to sense check cashflow assumptions and business status and had commissioned an IBR.
Treatment of VAT items, off payroll working and expense treatments for PAYE required significant overhaul
Major concern over the level of enquiries coming from the SLC on student attendance and from my perspective the level of diligence attached to ongoing attendance visibility.
Consistency of data on student attendance via electronic methods was causing major problems.
Academic resources lacked the buy in for management of attendance (non, falling, or intermittent), returners and non funded students.
Financial & MI systems were not fit for purpose. Authority levels on a range of items had not been adhered to and lacked appropriate structure.
In November 2020 the business was informed that it would be the subject of a Panorama programme highlighting the use and behaviour of certain agents within the HE sector.
The fallout from the Panorama programme and the decision by the Board to remove all agent-based recruitment (which accounted for 20% of all student numbers starting each year) meant that the current business plan was unviable and a significant cash deficit would occur with the space of 12 to 18 months. The Board concluded the Business should be offered for sale alongside a Business recovery plan.
Despite a significant equity injection in 2018 – in April 2019 the Chief Officer declared their intention to leave within a period no later than 6 months. The Business had endured unprecedented challenges over the last two years and the Board concluded the appropriate course of action would be a sale of the Business and/or a controlled teach out for a duration that our cash would allow.
In Early July 2019 the last potential buyer indicated that while they remained interested, they could not commit to a purchase and furthermore they would be unable to complete a transaction within the timescales required.
Main Actions
Amendments to cashflow forecasting systems implemented and personally overseen.
DfE and SLC approached regarding the outstanding sums along with the relevant plan to address the repayments and other improvement actions.
Worked with the Bank advisors re IBR to provide relevant information and answers to cash flow and business model assumptions which allowed the completion of the initial Refi.
HMRC/VAT- Identified core areas of weakness and items where payments were due – led to voluntary disclosure and repayment of known sums along with changes to accounting practices and controls.
An enhanced student attendance process was designed and implemented and an action to suspend the student with the SLC where relevant which limited the draw down of tuition fee.
A comprehensive weekly data pack and dashboard was designed and implemented. It dealt with the relevant metrics for that period of the academic year.
Major law firm were commissioned to undertake an immediate and independent investigation into the allegations raised in the Panorama programme. The DfE and other appropriate agencies were informed of the situation and the actions being taken. The DfE were also provided input into the investigation brief, had access to updates, and the final report. The investigation cleared the Institute of the allegations raised to the satisfaction of regulators.
Over a 4 week period a detailed business plan was created in conjunction with key members of the Executive team providing the necessary assumptions and vision and a robust 5 year financial model to support a comprehensive sale document.
This finally resulted in the PE owner deciding to fund the cash call via an equity input, but requiring certain undertakings with regulators to be removed and the Bank (along with PE owner) to write off all debt.
Advisors were engaged for the Sale Process, Contingency Planning for a possible Administration along with detailed advice on Directors Duties.
Main Results And Achievements
The Business was cleaned up to ensure compliance with external requirements and legislation.
Credibility with SLC was restored with Student attendance and SLC engagement processes improved.
Long term attendance improved and the number of SLC fraud and attendance enquiries all but eliminated.
Suite of essential KPI’s progressively developed and implemented.
Executive team furnished with weekly information to drive decision making and ensure meetings were action orientated.
Significant reduction in bad debts.
Academic team took ownership of key performance elements under their control and the Institute saw real improvements in attendance, second and third semester returner rates and student funding status.
The Business was robust in managing its cash with clear long-term visibility of the quantum and timing of future issues.
Despite eventual outcome and challenges along the way the Business was recognised by key external stakeholders for an open and forthright approach, effectiveness of handling the issues and delivering on its commitments.
Professional and highly capable team within the Finance and MI areas delivered quality and timely information, supporting the Business in its decision making but at the same time upholding robust controls and financial stewardship.
Delivered on challenging, time and business critical processes with multiple and conflicting priorities.
In conjunction with advisors and taskforce members delivered a planning process and eventual implementation for an Administration that:
Supported students and staff throughout the process
Resulted in 96% of students reasonably expected to do so engaging in processes
to discuss their options for transfer.
Ensured that >90% of student likely to progress were in the process of
transferring/had transferred to another institute
Ensured that where available SLC/DfE rules could be used to ensure a fair
funding deal for affected students.
Ensured that appropriate funds were available for the Administration and these
funds were eventually received
Future return to creditors expected to be good.