This article has been written by Alistair Wardell – Partner at Grant Thornton.
Universities, once thought of as infallible, are now facing a whole new world of uncertainty. I wonder what will happen when Vice Chancellors, Governing Boards and Heads of Finance recognise they are now having to operating like corporate entrepreneurs, when faced with the harsh reality that their golden dream has unwittingly become a distressed business.
At the end of last year the BBC reported on a number of notable brands that had disappeared over the past decade and whilst these stories may have been shocking at the time, the news of failed businesses is not a revelation, but in the Higher Education arena, where many institutions have previously been fortunate to have benefitted from a wide variety of income streams, the announcement of an insolvency is alien.
I have commented previously that even with my 20 years plus experience of helping both business boards and business owners, together with banks, lenders and investors address highly sensitive and problematic commercially distressed organisations and I can candidly state, this is a complex and obscure sector when it comes to considering the severe financial impact universities are dealing with.
Potential for 13 universities to become insolvent
With previous news from the IFS highlighting the potential of 13 universities becoming insolvent and the Government now offering a new restructuring regime specifically for the higher education sector, this is a stressful time for the industry and I feel the need to speak out and offer some crumb of comfort in these challenging times.
I cannot emphasise highly enough on the importance of timing and the need to take swift action to explore all options that are available. The task is a difficult one; emotions need to be set aside to avoid distraction as university leaders contend with the challenges of market uncertainties and the accelerated pace of disruption to their established business model.
Scenario planning, across a multitude of outcomes is a must do and should also include contingency preparation to provide certainty and a clear course of action, should events not unfold as expected.
A fast paced and multi-disciplined approach is required and as a course of action, aside from seeking professional guidance to ensure technical and commercial acumen prevail, I would recommend the following:
• Identify the revenue and cost options available to the establishment – EG replacement of European student revenue lost due to Brexit and wider overseas revenue due to Coronavirus and cost savings from streamlining and centralising costs
• Map out implementation plans
• Engage and communicate with the various stakeholders
• Prioritise cash flow and working capital arrangements
• Assess current borrowing covenants and clauses
• Consider pension-centric consequences
• Examine debt restructuring
• Navigate the various refinancing and funding options with caution and dexterity
• Explore accelerated sales opportunities
• Investigate interested investment sources
• Focus on reducing the risk of expensive tax consequences
New restructuring regime
The government’s new Restructuring Regime may herald a degree of hope to ease financial pressures for some English universities, but this scheme will only provide support after all other finance options have been exhausted and when there is a case to do so.
Even if eligible, the governments’ communication is clear that this support comes with specific conditions that align with their wider objectives to focus the sector towards the future needs of the country, such as delivering high quality courses with good graduate outcomes.
In our commercial experience such stipulations can be stringent and problematic and are not always the silver lining they appear to be. In addition, the governments objectives may well conflict with the ethos and values of the university in question.
Together, this may leave the university leaders in an unyielding position, making the situation very difficult to swallow. Furthermore, when applying for this investment and support there are conditions, measures and criteria to be addressed and as evidenced within the corporate market, one would expect only the most resilient and watertight applications to succeed.
Whether this backing will be available, sufficient and timely is yet to be seen but given the unprecedented times we are currently living in it feels naïve to wait and see, maybe Restructuring and Rescue should be immediately added to the syllabus!