In February, as schools across the world began closing down to curb the spread of Covid-19, Nadim Nsouli was on the cusp of closing arguably the most important investment to date in Inspired Education. The founder and chief executive of the premium private school operator had lined up GIC, a Singaporean sovereign wealth fund, to invest €350 million into the group in exchange for a 15% stake. The deal would give Inspired an enterprise value of €3.05 billion just seven years after it launched - making it one of the world's most valuable independent school chains, along with Cognita, GEMS Education and Nord Anglia. Despite growing warning signs that the coronavirus crisis was to negatively impact private schools' revenues, GIC signed off on the investment in March, according to sources. Just three weeks later, however, and Nsouli would be fearful more for his life than his
ability to close the transaction.
Nsouli chaired a virtual board meeting on 17 March with his investors, at which he had been "in bad shape". A week later, he had collapsed to the floor of his London home after feeling feverish and short of breath. It was evident that he had likely contracted Covid-19, which led him to self-isolate, though he continued to work. But on 30 March, Nsouli was rushed to a London hospital by ambulance and rigged up to an oxygen tank to support his hampered breathing. At the time, patients infected with the virus who had to be placed in intensive care had an approximately 50% chance of death. Fortunately, he was not one.
"My health deteriorated extremely quickly," says Nsouli, recalling the frantic period in which "the dominoes were falling fast", in terms of both his health and schools closing down. (Educationlnvestor Global was informed by sources of Nsouli's ordeal and spoke with him about it via Zoom.) By late March, most of the group's schools in countries such as Italy, Spain, Bahrain, Vietnam, New Zealand, Australia and South Africa had closed down by order of governments. Dealing with complex questions from investors about performance forecasts was not new to Nsouli, who spent eight years buying, expanding and selling companies for buyout houses The Gores Group and Providence Equity Partners, where he was head of Europe and a senior partner, respectively. Doing so from a hospital bed, however, was a novel, stressful experience.
"I was making myself worse with the stress," says Nsouli. Despite being hospitalised for five days, he worked throughout most of them, sometimes spending "16 hours" on calls with, and sending emails to, his lawyers orchestrating the GIC deal. He strategised with lnspired's regional management teams scattered across five continents as an oxygen tank hummed beside him, driving life into his lungs. "I understood their concerns about the business - and my health", which is now "perfectly fine", he says in July, from his hideaway in the Bahamas.
GIC had good reason to fret about the health of the ship's captain: sources claim that Nsouli, despite being a minority shareholder, controls the majority of voting rights. Of six seats on lnspired's board, he controls three, plus the casting vote, insiders say, though he declines to comment. According to filings with Companies House, two of lnspired's investor board seats are occupied by Warburg Pincus and TA Associates, two private equity firms that each pumped hundreds of millions of dollars into the group. The other is now controlled by GIC. According to sources familiar with lnspired's shareholder structure, the firm's investors possess few veto rights - a condition at which most buyout funds would baulk - although, again, Nsouli will neither confirm nor comment on this. Investors in Inspired are seemingly betting on his strategic nous and have limited say over big decisions.
Like all school proprietors, Nsouli in recent months has had to make difficult choices. Rather than offer a blanket discount on tuition fees, all of lnspired's schools, some of which charge over £75,000 a year (for boarding in Switzerland), set up hardship funds, to help families whose finances had been hit hardest by the pandemic. The group had "already invested heavily" in technology platforms, so the pivot to distance learning was "straightforward", says Nsouli. lnspired's first school closure occurred in Vietnam in early February, which allowed the group's institutions elsewhere to "quickly learn lessons of best practice", he says. Pupils follow a normal timetable in which interactive lessons - including sports and music - are delivered live by teachers, who keep regular contact with parents.
GIC's investment in Inspired underscores a burgeoning trend in which sovereign wealth funds, which manage assets on behalf of governments, and other forms of 'patient' capital, from pension funds and family offices, are taking long-term stakes in large education providers. Premium international school operator Nord Anglia is part-owned by a Canadian pension fund, as is global nursery group Busy Bees and private university chain Galileo; Cognita is owned by a Swiss family office. In many cases, such investors are able to commit large sums of money over long time-frames to scaled education businesses because of their sticky revenues. An all-through school, for instance, could feasibly collect fees three times annually from the same customer for up to 18 years. Plus, K12 is one of the most recession-resilient educational subsectors: however bad the economic downturn, students will still go to school.
GIC first set its sights on Inspired around four years ago, according to sources, who say it has been pipped to the post on several occasions. In 2017, the $400 billion asset manager lost out to TA Associates. Then, in March 2019 when Inspired had been seeking fresh capital at a €2.2 billion valuation, GIC dropped out before the second round of a bidding war that ended with Warburg Pincus paying around €350 million for a 20% stake, fending off competition from ADIA, Abu Dhabi's state-controlled investment fund. GIC declined to comment on information contained in this article.
This time, though, GIC had first-mover advantage as it had already done extensive due diligence on Inspired during previous funding rounds, which enabled it to act quickly and decisively. Its investment, which was reported exclusively by Educationlnvestor Global, saw private equity firm Oakley Capital exit its holding in Inspired, which it bought in 2013 and at its highest point comprised 35%. GIC is expected to remain invested for at least 10 years, though it is understood to have the same exit rights as other investors
Nsouli declines to comment on earlier funding rounds and the parties involved. Asked whether he is surprised by the willingness of private equity investors, which almost always seek full control of businesses they acquire, to buy into his unusual governance terms, he says: "When I founded Inspired, my key goals were to have control over what is best for the business and not face any pressures on exit - so I didn't think that private equity was a natural fit at the time. However, we have performed extremely well and have been able to find the right investors to support our long-term plans.
"I truly believe that we have the best combination of blue-chip investors that a company could dream of having: GIC, Warburg Pincus and TA Associates, and two highly respected global family offices, the Oppenheimer family and the Mansour Group."
Inspired was founded in 2013 following its acquisition of South Africa's Reddam House, an esteemed group of premium private schools set up by educational entrepreneur Graeme Crawford, who remains with Inspired in a senior role. In recent years, Inspired has spent hundreds of millions of dollars hoovering up -and building - prestigious schools in numerous countries, including Spain, Australia, New Zealand, Mexico and Bahrain. It now operates more than 60 worldwide. Inspired tends to target established school brands in affluent areas with wealthy parental bodies and "on average" 1,000 students, most of whom will be locals, not children of expatriates, says Nsouli: "Apart from a handful of our schools, we are a premium group for local kids." Only 12 of its schools have boarding facilities. Nsouli says that schools built by Inspired typically become profitable within one-to-three years, compared with the industry average of around four. "We never open a school without using an existing brand," he says. "If we go into a country and open a new school, we acquire an already successful school and build around it. This allows us to leverage the brand to meet existing demand or create new demand."
Nsouli's career in private equity - renowned for its ability to free up cash by eradicating inefficiencies, often at the expense of corporate niceties - set him in good stead for streamlining schools' operations. "I wasn't an operator, but I quickly became one," he says. "We've improved the earnings of acquired schools significantly, while at the same time raising the standards of each school we buy across our three 'pillars': academics, sports and performing arts.
"I usually buy from founders who are talented, kind and have built successful schools. Great educators who are generally not businesspeople and lack focus on areas such as marketing, finance and HR, and do not have access to global best practices."
Nsouli heads up a tight-knit management team, several members of which have been poached from blue-chip organisations, such as British Airways and General Electric. Inspired employs five regional chief executives and four regional education directors, to whom headteachers report. The company's cadre of senior managers is smaller than that of some academy trusts. It is far more expensive, of course, but "that's the value of being in a group: single-site schools couldn't afford these kinds of people," says Nsouli. "They are strong enough to [each] oversee a number of schools, and they add a lot of value on the education and operations fronts."
But his background in the world of leveraged buyouts has, at times, led people to question his credibility as an educator. He is quick to dismiss such suggestions: "People often assume that I am not an educator, and that I'm some ruthless private equity guy. Well, like any other business owner, I know what my product is: premium education. We're charging high fees and we have many competitors. Therefore, teachers have to be top, heads the best and facilities state of the art. I believe that Inspired has the best school brands in the sector. The results of our top-ranking schools across the world speak for themselves."
Strength in numbers
The ongoing pandemic, which has resulted in more than 500,000 deaths and millions of job losses, poses significant threats to private schools worldwide. In the UK, for example, as many as 180 independent schools could be forced to close permanently as a result of Covid-19, according to consultancy EV-Parthenon. In June, we revealed that nine British private schools had announced closures - one of which, King's College Saint Michaels, was owned by King's Colleges Group, which Inspired bought last October.
Several schools in a state of financial flux due to Covid-19 have landed on his desk, but "we've decided to slow down acquisitions and capital expenditure projects for now to protect the business and staff as no one knows for how long this crisis will last".
Ultimately, the pandemic will almost certainly push large numbers of struggling single-site private schools to the wall, creating opportunities for large groups like Nsouli's to consolidate by sweeping up assets at attractive prices. For him, the wide-reaching financial effects of Covid-19 have reinforced the notion that there is strength in numbers: "It's an uncertain world right now, so it makes a lot of sense to be part of a group with a long-term shareholder base. For our schools, the benefits of being part of Inspired has never been clearer than in the past few months."