AEB Results Will Trigger Merger & Acquisition Activity

The results of the AEB devolution tenders were partly shocking and part refreshing.

Great to see new entrants to the market – some brand new, some that have previously delivered AEB as sub-contractors who can now operate without the 20-25% prime levy and some with modern outlooks and methods.

It is right that people had to put forward their offer and tender for these contracts which have previously stayed in the hands of some of the same faces for many years without challenge.

Shocking in that some good organisations who had direct AEB contracts, Grade 2 Ofsted and are right on their LEP/region priorities have now lost out in an ALL or NOTHING result for their business.

We know of many companies like this who are very upset and potentially losing their businesses, whilst Grade 3 (or ‘Insufficient’) and non-priority providers stand to gain up 4-year contracts in their place.

Shocking that in just 10-20 minutes you can conduct enough due diligence to see that some providers who have been awarded contracts represent a very high risk and are far less suitable to winning contracts than their losing counterparts.

Does it make sense for the government agency to put a ‘stop’ on a provider delivering apprenticeships because of their ‘Insufficient’ Ofsted rating yet then offer a new lucrative contract to that same provider just a few months later?

There is a thought that it is the quality of the bid and the words used that matters rather than the quality of the provider.

But all this is just the merry go round of contracts – and life. It is new, it has changed, and people must move on and accept the results. What these results will do is trigger a real movement in Merger & Acquisition (M&A) activity amongst private providers.

Those that have LOST contracts and potentially lost their business want to stay in – and if they have the cash available they are looking to buy providers who have been awarded new AEB contracts.

Those that WON, know that they have (potentially) long term contracts available that carry a value and maybe this is their time to sell.

We are aware of many organisations who are very keen to purchase providers with the new AEB contracts.

Then there is the question of new entrant opportunities. There has been no market access for new providers requiring Advanced Learning Loans for several years now – despite the fact that many £millions of contract values sit unspent with colleges.

There is no immediate market access for Apprenticeships for those that have, say for example, split from their business partner and want to start a new business without them. Likewise, these new AEB contracts do not give the opportunity for new entrants and effectively have a ‘closed shop’ look about them for the next 4 years.

The argument that this is to protect quality cannot be right as many of the AEB winners have already been graded 3 or Insufficient.

The lack of consistency by agencies are a cause of frustration for many providers where clarity and certainty are required.

David Kitchen is Managing Director of The Leadership Team. Specialist growth consultancy for the FE sector