Buying a School

Private schools are no longer the preserve of the elite. Partly as a result of the perceived shortcomings of the state system, and partly because of greater affluence, more and more parents are choosing to pay handsomely to educate their children.

However, despite this trend, it’s surprising how unaware the money-conscious are of quite how lucrative running a school can be, despite the fact that the initial sums required are quite high.

Piers Carter, Director of STC – a confidential education business brokers – explains: “It gives very long-term and very secure returns, if the school is managed correctly,” he says.

STC specialises in prep schools, which are no longer targeted at those aspiring to a public school. Many parents in areas such as Kent or Birmingham see the schools as gateways to grammar schools, or just as a means to give their children a kick-start in life.

Long term customers

“You keep your customers for, on average, seven years and you get your cash in advance,” Carter adds. “Put simply, people are prepared to give up luxuries such as holidays to pay for this product. Once people are committed to independent education, they’re very reluctant to give it up.”

Unlike many businesses, you keep your customers for several years at a time. He adds that, during the recession of the early 90s, it wasn’t until around 1995 that schools began to have problems – by which time, “Granny had sold her Range Rover".

It is possible to buy a school as a fully managed package, with head teacher, bursar and reliable staff already on board. Depending on what you are buying, returns of between 12% and 25% on your initial investment can be achieved.

The price of such schools ranges between £500k and £20m, although Carter says that the average good school will cost between £2m and £5m in the more affluent areas of the country, for both leaseholds and freeholds. Of course, the latter will be more expensive – although this is certainly not just a game for millionaires.

Lucrative business

It shouldn’t, however, be seen purely as a property investment – schools will usually give better returns than property, and by purchasing a leasehold you will get “more school for your money”.

Schools will typically charge between £2k and £3k per term for an average of around 300 pupils, although school sizes vary considerably on either side of this.

Just as with the education market itself, the range of buyers of schools has expanded considerably over the past five years – educational companies, ex-teachers and private investors are all represented, along with interests from overseas.

“There are many more foreign buyers. There is a huge interest in buyers from Mexico to Dubai. It’s partly because of the perceived strength of UK property and the UK economic climate,” Carter says.

Clearly, schools are more expensive than many other businesses, but loans can be secured and agencies such as STC have strong links with companies in the financial services. Banks are quite aware of how good an investment a well-run school can be.

Quality is key

The first thing you should look for in a school, according to STC, is quality. You should ensure that staff are well paid, the premises are in good condition, and that the classes are fairly evenly matched in numbers throughout the school.”

Location is, as always, a factor – with schools in the Home Counties at a premium. “If you want a bargain, buy in a rural location,” Carter explains. “If you want a secure market, then buy in an urban location. There are other factors, though – smaller buyers want accommodation for the family as well.”

But personal involvement isn’t really a requirement. Carter and his wife have owned a school since 1978, and only devote a day a week to its management – the result of employing good staff and, most importantly, a good headmaster.

Conversely, he doesn’t recommend trying to turn a school around unless you have some experience of running an educational institution – although most buyers do have an interest in, and an appreciation of, education.

However, this doesn’t preclude the possibility of expanding or extending the school’s offer. For example, at Carter’s school, he has added a nursery in recent years with the help of a competent manager.

He emphasises, though, the financial aspects. With the stock market performing so poorly, and property looking increasingly insecure, investors are scrabbling around for better returns. The school market’s security and its high returns are often overlooked.

To sum up, Carter says: “I really think there is no better business to be in terms of long-term stability.”