Intueri Education Group was a New Zealand-headquartered vocational education group that was established by Arowana in 2010. It was subsequently scaled up through a buy, build and integrate programme, comprising seven college businesses in both New Zealand and Australia. Under Arowana’s ownership, Intueri grew from revenues of NZ$4m and EBITDA of NZ$1m to pro forma revenues of NZ$77m and EBITDA of NZ$25m, respectively, at the time of its IPO in 2014.
Following three years of immersive, investigative-journalism-style industry research, and multiple due-diligence processes in Australia, Arowana had decided not to invest in Australian education because we felt the regulatory risk was too high (this would subsequently prove to be the right call, as we walked away from ostensibly financially attractive businesses that others ended up buying and suffering as a result). However, we did utilise our findings in Australia to go to New Zealand, where we had been led to believe and confirmed that the regulatory regime (at that time), was stable. Arowana bought its first education college business, in Christchurch, New Zealand, in May 2010. At the time, New Zealand was an unpopular investment destination as the NZD was near an all-time low and the prevailing macroeconomic concern was that the country’s current account deficit would cause further declines in the NZD.
Wearing our contrarian hat, and equipped with sound macroeconomic insights from our Advisory Board member Simon Ogus, we felt differently. We were encouraged when we saw a very fragmented industry, a consistent and accessible regulator (in contrast to a volatile regulatory regime in Australia at the time), and more attractive valuation multiples in New Zealand.
Yet this first foray into New Zealand quickly turned into a major problem. An earthquake registering 7.1 on the Richter scale caused widespread damage in and around Christchurch. This caused significant disruption to the Design and Arts College business we had bought there, and all the international students who were there, or who had registered to come, withdrew. This rendered our key strategic growth driver invalid.
While we were still working through the ramifications of this, a second earthquake hit the city centre in February 2011, and the college campus building was condemned. Within two weeks, the leadership team, supported by Arowana executives who parachuted in, scrambled to secure eight new sites (including three residential properties) as temporary campuses for students to continue their studies. However, this was not enough to stop the business from losing students and rapidly descending into losses. We had a tough decision to make: write off the investment as bad luck or fight and support it. Reflecting our ethos as a company, we chose the latter.
This decision was justified, but only thanks to a combination of hard work, corporate resilience and strong engagement skills that saw us secure insurance recovery, and support from the key industry regulator, the TEC (Tertiary Education Commission), to continue operating the college over the following 12 months.
Now entrenched in the New Zealand education ecosystem, thanks to Intueri, Arowana was uniquely aware of acquisition opportunities. In May 2011 we acquired Elite International, an Auckland-based leader in the provision of beauty and spa treatment vocational training. This was followed by the acquisitions in February 2013 of three other North Island-based businesses: Cut Above Academy (the leading hairdressing college in the country), NSIA College (the leading culinary school in NZ) and the NZSCDT (the leading commercial diving school in the southern hemisphere at the time). Buying and onboarding one business is challenging enough, let alone three, but Arowana had developed a 90-day onboarding and integration plan for the business. We had a very clear idea of what we were going to do day by day for the first 90 days and a well defined strategy and execution plan for the first 12 months.
Unfortunately, the execution of this onboarding plan faltered, and by July 2013 the CEO resigned suddenly. Facing an unexpected 30% shortfall against budget, Arowana quickly mobilised, bringing in a team led by Kevin Chin to get the process on track and to turn around the budget shortfall – we had six months to do this.
Codenamed “Operation Mahi Mahi”, the plan involved the introduction of Rockefeller Habits as a corporate planning and communications rhythm tool, the roll-out of KPIs and the introduction of a shared-services platform encompassing governance, accounting, IT, marketing and compliance. Importantly, galvanising the sales force to drive more international student revenues was a key priority. By the end of December 2013, Intueri had recovered and soared to more than 20% ahead of budget, a remarkable outcome given what had to be done.
Confident that we had the core business back on track and fully on-boarded and integrated, Arowana thus set about looking at other acquisition opportunities. A transformational acquisition opportunity called Quantum Education Group in NZ presented itself. At the time, it was the largest single PTE (private training establishment) in the country, and its acquisition would double the size of the Intueri group. Given Quantum had just undergone a comprehensive regulatory audit by the TEC, which had reported a clean bill of health in December 2013, Arowana struck a deal in February 2014. At the same time, we acquired 50% of a fast-growing online education business in Australia called Online Courses Australia.
In May 2014, Intueri consummated its IPO on the NZ Stock Exchange and the Australian Securities Exchange, with an initial market capitalisation of NZ$235m. Arowana secured a return of approximately 7x its original invested capital and a 129% IRR
. This s based on proceeds received from the selldown of 75% of its shareholding into the IPO and was also partly thanks to the strengthening of the NZD by approximately 25% from the time of Arowana’s initial investment.
Our perspective on vocational education and an insight into our experiences and learnings from Intueri can be found below.Arowana International – Vocational and Professional Education and Training