Duncan Murphy, director of education and strategy at MTM Consulting, explains how catchment and socioeconomic data could transforming the merger and acquisition landscape

 

The UK independent schools’ sector has long been a cornerstone of excellence in education, renowned for its ability to deliver bespoke learning experiences that cater to diverse pupil needs. However, shifting economic pressures, changing demographics and increased competition have ushered in a new era of strategic manoeuvring. One of the most significant trends shaping the sector is the growing reliance on catchment and socioeconomic data in the merger and acquisition market.

As school leaders, investors and education groups navigate the complexities of potential consolidation, they are emulating the commercial sector by understanding that the provision of a statistical layer of data-driven insight is indispensable. From identifying suitable growth opportunities to mitigating risk, the unerring influence of accurate catchment and socioeconomic data is playing a pivotal role in reshaping the future of independent education.

The changing landscape

Independent schools in the UK are facing a host of challenges. Rising operational costs, teacher salary and pension inflation, as well as increased regulatory scrutiny have added financial strain. At the same time, affordability concerns among parents, coupled with VAT on school fees, enhanced NI employer contributions and loss of business rate relief, have forced many schools to rethink their sustainability in the current climate and further evaluate their value proposition. It’s worth noting that while there are, at a glance, healthy numbers of children in our independent schools, the overall market share is representative of just 6.6% – and this statistic is one that the sector as a whole should seek to address more substantively in terms of collective advocacy for a more universal value proposition.

In response to the major economic headwinds, M&A activity within the sector has surged as schools seek partnerships, acquisitions or group affiliations to achieve economies of scale and secure their long-term viability. However, the success of these transactions increasingly hinges on the procurement of accurate and contextually nuanced data to preface the important personal determination of cultural synergies.

Catchment data

Catchment data, which outlines the geographic areas from which schools typically draw their pupils, has become a critical factor in the M&A market. It provides insight into the demand dynamics surrounding a school and helps stakeholders assess the sustainability of enrolment figures.

1. Understanding enrolment potential

Catchment data allows schools and investors to evaluate whether a school’s location can sustain or grow its pupil base. For instance, if a school draws heavily from areas with declining birth rates or an ageing population, its future enrolment prospects may be limited. Conversely, schools located in growing areas with an influx of young, affluent families can be more attractive acquisition targets due to the potential for measured growth in the medium term. There are very distinctive factors that will need to be taken into consideration when approaching urban schools as opposed to rural schools, for example, which a data-driven approach can assess from a desktop perspective before wasting a disproportionate amount of time and money in pursuit of a false dawn.

2. Assessing competition

By analysing catchment data, stakeholders can identify overlapping travel-time zones with competing schools, both from the independent or maintained sectors. This is particularly important in densely populated urban areas where parents have multiple choices for their children. If a prospective merger involves two schools with similar catchments and socioeconomic profile of typical families, the transaction may risk cannibalising student enrolments rather than expanding market share unless there is a very clear divergence in the academic offer or price-point – or, as an emergent trend is already showing in the domestic market, there is a longer-term desire to realise the asset of one school in order to enhance the overall provision and fiscal sustainability of the other.

3. Transport and accessibility

The availability of transport links and ease of access can significantly influence a school’s attractiveness within its catchment. Data on commuting times and public transport options helps acquirers evaluate whether a school’s catchment area can be expanded effectively through improved transport strategies. This would be especially relevant for the acquisition of a stand-alone prep school, for example, that possessed the ingredients for a potential expansion in age range up to 16-plus and was situated close to a mainline railway station in order to expedite links for older pupils who may be willing to travel independently, and from further afield, in order to reach the school.

Leveraging socioeconomic data for informed decisions

Socioeconomic data provides a deeper layer of analysis, offering insight into the financial and demographic characteristics of families within a school’s catchment area. This data is instrumental in forecasting revenue potential and aligning pricing strategies. In the light of VAT on fees, the full impact of which is yet to be fully understood, a careful study of fee elasticity is an essential piece of due diligence. Not only will it be a sensible component of a ‘sales package’ for schools which are looking to be acquired, but the report findings should be carefully stress-tested by experts in their field on behalf of the acquirer in order to ensure their veracity. It is construed that the true fallout from VAT being applied to fees will be felt not only at the present time by falling numbers of registrations from prospective families but more pertinently in approximately 18 months’ time when current parents will more accurately assess the financial position set against their child reaching a natural exit point for a cheaper, or free, alternative mode of education. Consequently, it is worth revisiting the importance of an effective ‘sales funnel’ with those responsible for its delivery and execution so that agreed targets can be set, tracked and reviewed in order to maximise every possible opportunity in a diminishing market.

1. Income levels and fee affordability

Independent education remains a significant financial commitment for families. A thorough analysis of income levels within a set catchment area will help assess whether the local population can sustain current fee levels or absorb potential increases. Interestingly, MTM research estimates that a 10% change in fees will typically induce a 4.4% reduction in enrolment; furthermore, a 15% shift in pricing would probably lead to a 6.6% contraction. While there are natural variances between the statistics for individual schools and indeed geographical areas across the country, the effective modelling for a fee pricing strategy set against projected revenue should be a key determinant in the armoury of every school. It is unsurprising that schools in affluent areas with evidence of high disposable incomes are naturally very appealing in the M&A market – but they either rarely come up or command a hugely competitive process when they do. This is where the procurement of a resourceful M&A agent working ‘on the ground’ can be the difference between acquirers getting around the table with a prospective target or reading about its acquisition by a competitor a few months down the line.

2. 2. Social demographics

When MTM undertakes a project of this nature, we work on an evidence-based assumption of four kinds of independent school stereotype users. Nominally, these are:

• Superstreets
• High roads.
• Aspirational areas.
• Low roads.

Typically, a school that can boast a higher proportion of superstreets ‘new money’ and high roads ‘older money’ families will be more resilient to the whims of the wider economy simply because they will either be less directly affected by the political climate or more culturally attuned to the value proposition of an independent education. The first demographic is a component of parents who will be broadly recognisable to many schools in Central London, the Southeast or other affluent urban areas. Often first-time buyers of an independent education, their level of wealth means they are impervious to the fluctuations of fees but they are unequivocally demanding in their pursuit of wraparound care and top-notch facilities on top of a strong academic and co-curricular offer.

The second predominant type of independent school buyer is the traditional customer base upon whom the foundations of a resilient business model are constructed; these are parents who were probably schooled in the sector themselves and aspire to give their offspring the same quality of education that they enjoyed. Although they are the most likely source of minor complaints about food or parking, they are ultimately the most loyal independent school families and will tend to make financial sacrifices across any other mode of living before contemplating withdrawal of their child from the sector. The latest developments with VAT will begin to affect the wherewithal of some of these families to commit more than one or two children through the system and there will be a greater determination about which entry point to start them at.

Predictably, the third cohort of independent school families, termed ‘aspirational areas’, are typically dual-income families who tend to send their child to an independent school either as a ‘crammer for grammar’ or for pastoral or SEND provision. Ironically, it is this demographic that will be hardest hit by the VAT policy and the well-publicised migration of pupils back into the maintained sector will come almost entirely from it. By contrast, although the final group of independent school users may have the least amount of disposable income, they are likely to be less affected by the prevailing economic headwinds; this is because they receive significant assistance with fees either by means of a generous bursary or because someone else, often a grandparent or other relation, pays the fees on their behalf.

3. Cultural and demographic trends

Socioeconomic data can reveal nuanced trends such as the proportion of families with school-aged children, ethnic diversity, and educational aspirations. For example, areas with high proportions of professionals and business owners often prioritise private education as they can see the value in its offer more than others, thereby making these catchments more viable for independent schools and their ongoing longevity.

4. Economic resilience

The economic stability of a region is also crucial. Data on employment rates, property values, and growth industries can indicate whether a catchment area is likely to remain a strong market for independent education or if it is more vulnerable to economic downturns. Detailed postcode analysis, combined with network expertise and stakeholder engagement, will go a long way to better understanding the nature of the immediate audience to whom a school needs to pitch, whether its offer is still relevant, and how it might need to adapt sensibly in order to mitigate the unpalatable prospect of falling numbers and rising costs.

Data in action: Case studies of M&A theory

The integration of catchment and socioeconomic data has already proved its worth in several high-profile transactions within the independent schools sector. At MTM, we specialise in the development and project-management of an achievable, effective M&A strategy for individual schools, charitable trusts, for-profit groups and investors. Due to the confidential nature of this work, it’s not feasible to outline bespoke examples, but three types of construct are referenced below as exemplars.

Case Study 1: Regional expansion strategy

An education group seeking to acquire a cluster of schools in a specific region used catchment and socioeconomic data to identify areas at a street level within certain postcodes to determine unmet demand for independent education. By targeting schools in regions with growing populations and limited competition, the group procured a measured expansion of its portfolio and ensured a steady pipeline of admissions post-acquisition.

Case Study 2: Mitigating enrolment decline

A single-site independent school facing declining enrolments, due to significant demographic shifts, partnered with a larger corporate entity in order to stabilise its operations. Socioeconomic data revealed that the catchment area had seen a rise in middle-income families who were increasingly unable to afford high fees. The group implemented a tiered pricing strategy and diversified its offering by investment in a dual expansion at the lower and higher end of the original age range, ultimately resulting in a successful turnaround of reputation and profitability.

Case Study 3: Urban consolidation

Two competing schools in a metropolitan area merged to form a single institution. Catchment overlap analysis highlighted which of the two campuses to retain and how to streamline transportation routes, ensuring minimal disruption to existing families while capturing a broader market. In tandem with skilful stakeholder engagement, an understanding of the relevant value proposition sought by its audience and excellent communication throughout, a successful outcome was achieved which realised the fruition of one major asset to augment the ongoing provision of the other.

Challenges and ethical considerations

While the use of catchment and socioeconomic data is undeniably powerful, it is worth remembering that it can also raise important ethical and practical questions.

1. Privacy and data protection

Schools must ensure compliance with data protection regulations such as the General Data Protection Regulation. Aggregated and anonymised data should be used to avoid infringing on individual privacy rights.

2. Equity and access

Over-reliance on socioeconomic data could inadvertently reinforce inequalities. For example, focusing solely on affluent catchments might lead to underinvestment in schools serving diverse or less wealthy communities. Education providers should ideally aim to balance profitability with a commitment to inclusivity.

3. Accuracy and interpretation

Data is only as good as the methodology behind its collection and interpretation. Poorly analysed data can lead to misguided decisions, underscoring the need for expert consultation and robust analytics to accompany any such project.

The future of data-driven strategy in independent education

As the independent schools’ sector continues to consolidate, and potentially evolve with new entrants, in a disrupted market, the strategic use of catchment and socioeconomic data will only grow in importance. Beyond M&A, these insights can inform a range of operational decisions, from marketing strategies to curriculum development, as long as they are placed into suitable context by experts in their field. The declining birth rate, currently being felt in no uncertain terms at a primary level, will soon impinge upon admissions into secondary schools; it is imperative that effective financial modelling is espoused to prepare stand-alone independent schools, especially preps, to operate on a lower cost base, increase commercial revenue streams and/or consider joining into a protectorate.

Emerging technologies such as artificial intelligence and machine-learning promise to enhance the granularity and predictive power of these data sets. For example, AI tools could simulate the impact of demographic shifts or economic policy changes on future enrolment patterns. The ability to draw up robust contingency plans based upon such predictive information could, and should, be groundbreaking.

Moreover, the increasing availability of real-time data means that schools and investors can respond more quickly to market changes. This agility will be crucial in an environment where traditional models of independent education are being continually tested.

Conclusion

The integration of catchment and socioeconomic data into the merger and acquisition market is reshaping and underpinning the UK independent schools sector. By providing actionable insights into enrolment potential, competition, and financial resilience, these data sets empower stakeholders to make informed decisions as a part of a broader strategic vision.

However, as with any tool, the ethical and practical challenges of data use must be carefully managed. By combining data-driven analysis with a commitment to educational excellence and inclusivity, independent schools can not only survive but thrive in a competitive and ever-changing landscape.

In a sector where the stakes are high and the challenges are many, the intelligent use of data offers a pathway to sustainable growth and enduring success. The schools, groups and investors that embrace this approach will be well-positioned to lead the next chapter in the story of UK independent education.