Recently, the market recorded many merger and acquisition (M&A) deals involving private universities.
Currently, besides the issue of sequence and procedures, the conditions to be permitted to establish a private university in Vietnam are very difficult. Decree 46/2017 requires investors to have a minimum school construction land area at the main headquarters of 5 hectares and an investment capital of a minimum level of 1,000 billion VND (excluding the value of the school construction land).
That is an “unimaginable” condition for the majority of investors, whether having money or not having money. Regulators argue that such regulations are to let methodical investors enter, but whether investing methodically or not, people also have to cut their coat according to their cloth depending on each operational period of the school.
At the same time, the procedures and dossier to apply for a license to open a new university are also extremely complex and lengthy; it can take no less than 5 to 10 years for a license for one university (just look at the story of Fulbright University’s license to know). Precisely because of that, anyone who wants to invest in higher education now must think about buying back a license by way of M&A.
Why have many investors jumped into the field of higher education recently? Is a private university a goose laying golden eggs?
Many people view education as a super-profitable industry. This is the perspective of outsiders and novices. If doing education in the true sense, it has never been a super-profitable industry. Education only has one advantage: once having built a brand, investors do not have to put in (working) capital, meaning they collect tuition fees from students in advance, thereby possessing a stable cash flow.
If we achieve a scale of 10,000 students or more, with tuition fees around 2,000 US dollars/year, revenue will be quite large, over 20 million dollars a year. Whichever school was established long ago, has a brand, has facilities, and has many faculties can reach this scale; thus, a profit margin of around 8–10%/year will be financially sound. But currently, there are not many such schools.
During the time when the State had not tightened the establishment of new universities as heavily as today, even famous schools like RMIT took more than a decade to start turning a profit. Nowadays, costs for a university have become extremely expensive, from land, infrastructure, and teaching staff to equipment and machinery for departments.
If you want to do it methodically, with high quality and a long-term vision, investing in a university is not more profitable at all than investing in other business sectors. That is precisely why around the world people encourage the non-profit model or encourage capitalists to donate money to universities.
Yet investing in universities is not only difficult regarding capital money. Once having enough money, it remains difficult to continue from the stage of finding a rector matching the regulations of management agencies to building a qualified and stable teaching staff. The leadership team must also accept operating under a for-profit orientation. The rector of a public university going to work in that capacity at a private university will be very different.
The transition process is very complex, with different educational philosophies, different educational viewpoints, and different business viewpoints. The public university rector is the person with the highest power, but at a private university, the master/owner is the person with the highest power.
If so, how should current investment decisions be understood?
Investors view market prospects from the degree-obsessed mentality of Vietnamese people: everyone wants to have a university degree. Just having a degree is enough, regardless of what the quality is. At the same time, entering an international university or a good public university is still not easy due to high entry standards and quantity limitations, or huge costs. Therefore, private universities still recruit well because they satisfy the demand for favoring degrees among our Vietnamese people.
It cannot be denied that the training quality of some private universities is better than before, but to speak frankly, many recently born private universities play the role of “degree factories” to “universalize university degrees” with very low quality.
Therefore, you will see many university graduates working as waitstaff, golf caddies, salespersons, insurance agents, and receptionists—jobs that can be done without needing four years of university. There are many university graduates, including both private and public, who graduate without being able to communicate simply in English, without being able to write a coherent document from start to finish, and without simple social skills to be able to work effectively.
Besides that, many investors also expect to exploit policy loopholes to acquire land at cheap prices. If obtaining land even for educational purposes, later on there will be opportunities to convert it into residential land through various methods, such as borrowing the name of building dormitory apartments or university office buildings—which are actually company headquarters if the school falls into the hands of just a certain owner.
A great many people in the past took advantage to apply for land but could not organize good teaching. How many private universities were born that had money to build facilities? They simply held the land and waited for a certain buyer at a price of tens or hundreds of billions of VND.
Where will the private university M&A wave lead?
– In my view, the current wave is merely a hot, temporary, emotional fever. In truth, the number of investors jumping in is not that many either, concentrating in very few groups, so considering it a phenomenon would be more reasonable.
In my opinion, we are witnessing a “university bubble” state, an “education bubble” just like the stock market bubble previously, with the price of M&A deals being pushed too high compared to the real value and practical profitability potential.
Precisely the tightening of conditions for granting licenses to establish private universities and the tightening of the process of upgrading colleges into universities have inflated this bubble. This is something that should very much not be done and is completely disadvantageous to serious education investors, including large foreign investors with hundreds of millions of dollars to invest.
When an enterprise spends a lot of money to invest but expectations regarding profits are not met, at a certain point, investors and shareholders of that enterprise will be disappointed and put pressure on the leadership team. Spending hundreds or thousands of billions of VND to buy and rebuild universities and high schools with the expectation of recovering capital only to collapse comprehensively is a classic story in business, because no educational business model allows fast capital recovery with such a terrifying amount of investment capital.
Where will the university market – the degree market lead?
The story of “selling degrees” like currently will not continue anymore. The new trend is no longer favoring new degrees irrationally. In an information-open society like this, employers, and therefore learners, will not accept low-tier domestic degrees but will mostly switch to needing degrees with international quality and international accreditation.
When that happens, the problem lies not only in the fact that the mindset and investment of current private university owners cannot keep up with demand, but also in the fact that policy (Decree 86/2018 on foreign cooperation and investment in education) is not open enough in managing the affiliation between domestic schools and foreign schools to issue degrees and accredit degrees.
The university story will gradually face much more competition when future learning needs are micro-degrees rather than university degrees. This demand will change extremely quickly and flexibly according to labor utilization needs.
If there were no M&A wave like today, what would private universities be like?
– The old generations who owned private universities initially have grown tired; their being able to do as much as they did is already good. If possible, they should also yield the “front line” to new investors with more financial capability and governance capacity. However, what I want to say and worry about is the risk of the new generation of investors looking at higher education through the lens of super-profits, and then investing recklessly, leading to an outcome of either turning universities and education companies into places that “sell degrees” to recover capital fast, or receiving disastrous consequences like the once-famous Educomp company of India. When old investors let go and new investors jump in through this sky-high cost manner, professional investors will be unable to participate in the market, and therefore private higher education will fail to develop.
Currently, overall, private universities are still in the “lower rank” compared to public universities, unless possessing an international degree orientation—something that Decree 86, although much more progressive than previous decrees, is still not open enough to genuinely encourage. To develop private universities and reduce the burden on public universities and the public sector, education investors need to be granted a much broader mechanism so as not to fall into the vortex of the “bubble” game like currently.
Answering an interview with Saigon Times: shorturl.at/jvFRT
Nguyen Quoc Toan
