Thursday, April 05, 2012

Tough course: B-schools on sale

Harivansh Chaturvedi, Director of Greater Noida-based Birla Institute of Management and Technology (BIMTECH), is busy these days sifting through some unusual proposals from B-schools. In the past six months alone, five B-schools — two from Kolkata, one from the Northeast and two from Delhi — have approached him to take control of their B-schools. “We recently received proposals from two B-schools in Kolkata, one of which has around 1,200 students. Similar requests have been pouring in since the last six months. New B-schools which do not have students are finding it hard to sustain themselves. Now, they want to wriggle out of this situation,” said Chaturvedi. Two B-schools confirmed that they had approached BIMTECH. They did not wish to be named, as they have not formally approached the All India Council for Technical Education (AICTE), the regulatory body for technical education, seeking to shut shop.

More recently, Mumbai Business School (MBS), promoted by A. Mahendran, Managing Director, Godrej Consumer Products Limited (GCPL), and a few of his academic friends in India and abroad, including Jagdish Sheth, leading marketing guru, and Charles H. Kellstadt, professor of marketing at Emory University, shut shop. The institute was located in Malad, in suburban Mumbai, could not sustain itself due to lack of students and it had approached another Mumbai-based B-school. “We were not able to generate the operational cashflow and capacity utilisation was below the mark. So, we decided to down the shutters. We did approach a Mumbai-based B-school to support us but they declined,” said an official from the school.

As its last attempt to save itself, the B-school had roped in Bala V. Balachandran, founder and honourary dean at The Great Lakes Institute of Management, last year. The tie-up which was supposed to shore up the B-school’s profile, also failed. The investors are now planning to develop Mumbai Business School into a brand school or a super speciality B-school now. MBS registered itself under Section 25 of the Companies Act as a private entity. It was modelled on the lines of the Indian School of Business (ISB), Hyderabad, to provide a one-year full time programme in management.

At Gurgaon near New Delhi, a B-school, located in the vicinity of BIMTECH, recently hired Jones Lang LaSalle (JLL), a global real estate services firm, to find itself an existing higher education player interested in its campus. JLL confirmed this, saying it is part of the B-school’s real estate rationalisation strategy, but declined to divulge details. “There are many campuses in the country where land utilisation is not happening on the scale that it should. So, from this standpoint, one could very well sell the land and building or put the viability of the land to a better use. Many B-schools and engineering institutions which dot the highway near Delhi are seeking potential buyers,” said the director of a real estate services firm involved in a similar exercise for an engineering institution.

Industry players say these education institutions are hiring consultants to send feelers to prospective buyers. The lesser known B-schools are looking for established brand names to acquire them and probably use their land to establish an additional campus. However, S S Mantha, Chairman, AICTE, said, “I would not know if this is happening. We do not allow change of trusts. Change of name is fine. We have not received any such proposals wherein newer B-schools have approached the existing ones to be taken over.” Mantha added people are increasingly conscious of quality and deliverables. In the past two years, AICTE has received proposals from more than 95 B-schools to shut shop.

The managing director of a private equity firm, which has invested in education ventures, says there are various education institutions which are in the market to sell stake in their institutions, in part or in full. “There are entities which are out there looking at acquiring higher education institutions. Many are looking at selling a partial stake or full due to lack of capital. This is a big market trend and there are legitimate ways to acquire stake in trusts,” he said.

Education institutions are created under a trust. And, typically, if an interested party or a buyer provides a trust the much-needed capital, the trust may give its control to the buyer. In effect, say experts, it is only a transfer of control. “There is nothing wrong about it. The trust needs capital to expand and if internal accruals are not sufficient, this route is opted for,” adds an investor in higher education institutions.

Crisil Research, in a recent study, said it anticipated a ‘shake-out’ in the higher education space in India due to declining occupancy. The research said several colleges had not been able to equip students to meet the requirements of corporate India. “Low occupancy rates make it difficult for lower-rung colleges to sustain operations. As a result, we expect a number of colleges to face closure or change in ownership over the next few years,” said Ajay Srinivasan, head, industry research, Crisil Research. According to Crisil Research, the average occupancy rate declined in 2011-12 to around 67 per cent for engineering colleges and to about 65 per cent for B-schools.

Source: Business Standard, April 5, 2012

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