Joint ventures at the for-profit/non-profit interface

In these troubled financial times, should a non-profit higher education institution consider teaming up with a for-profit partner to create new sources of revenue?  Inside Higher Education reported on an interesting presentation by Michael B Goldstein at the recent meeting of the National Association of Independent Colleges and Universities that suggested this might provide an important lifeline for institutions under financial pressure.

Goldstein noted that several smaller non-profit colleges with severe financial problems have had to sell themselves to for-profit entities.  Although the institutions survived, they did so by relinquishing control to others. Examples of such institutions are Grand Canyon University, originally a Southern Baptist college, which was sold to Significant Education LLC (also behind the similar purchase of  Chancellor University, new home of the Jack Welch Management Institute) to become the first for-profit Christian college; Post University, which was bought by Generation Partners; and Ashford University, originally sponsored by the Sisters of St. Francis, now owned by Bridgeport Education.  A somewhat related fate befell the College of Santa Fe, which is now owned by the city of Santa Fe, but leased by Laureate Education (Update on the College of Santa Fe- Laureate deal, July 30, 2009).  Indications are that the for-profit sector continues to be quite interested in acquiring fully accredited non-profit institutions, and, unfortunately, there are an increasing number of accredited  institutions whose financial situations make them prime targets for acquisition.  

Goldstein suggests that there is a “middle track” possible to exploit the higher education interests of investors: forming joint ventures with a for-profit venture.  Such a joint venture can enable the college to tap into the capital markets to build some new revenue producing academic programs without ceding control over the academic core of the programs.  He suggests that the appropriate model for such a venture is to create a new, independent entity such as an online program or new institution.  Within this entity, core academic functions would be handled by the college, while the new entity would handle non-academic services, such as student support, marketing and finance.  The new entity itself should be controlled through majority ownership by the college so as to assure that all aspects are handled in ways that are appropriate to the brand of the college.  An underlying goal of the approach, according to Goldstein is” This enables you to pick the best capabilities of the various partners, so you don’t have to build it or do it all yourself.”

Two models of this approach discussed were the recent (and much discussed) partnership between the National Labor College and the Princeton Review's Penn Foster Education Group, and the partnership between Tiffin University and Altius Education to form Ivy Bridge College. Ivy Bridge College enables students to earn associate’s degrees online.  It is accredited by commission of the North Central Association of Colleges and Schools, and has transfer agreements with almost two dozen four year colleges.

A slightly different approach, but ultimately in the spirit of Goldstein’s quote above, has been used by Laureate Education in some of its dealings with non-profit higher education institutions(Interesting activity at the for-profit/non-profit interface: Laureate, Jan 14, 2008). In 2006, Laureate and some Turkish partners agreed to take over technology, student and human resource services, and financial management for Istanbul Bilgi University.  The “win” from Bilgi’s perspective was that it joined Laureate’s global network of universities, thus opening up study abroad and exchange opportunities for its students.  In addition, resources came to Bilgi to allow it to expand in Turkey and possibly beyond.   Also in 2006, Laureate partnered with Liverpool University and Xi’an Jiatong Univesity to set up the Xi’an Jiatong-Liverpool University in Suzhou, China.  Academic programs are under the control of the two university partners, and finance and management is provided by Laureate.

Kaplan also has a number of arrangements with non-profit higher education institutions that are not dissimilar in goal and philosophy to the approach suggested by Goldstein (Interesting activity at the for- profit/non- profit interface: Kaplan, Jan 7, 2008). In particular, in Asia, Kaplan has partnered with a number of primarily English institutions to enable them to offer degrees in Asia without the expense of setting up stand-alone programs with all of the costs of student recruitment, management at a distance, etc.  Again, Kaplan is providing what it can do best (capital, management, infrastructure), while the universities provides what they can do best (academic content), and everyone is benefiting.

There is actually a fair amount of evidence that, under the right conditions, with the right partners, Goldstein’s advice is on target.  Getting partners who have strengths that compliment yours is the key component of a win-win situation.