Due diligence | International Teaching Magazine

Starting a school in the Middle East?

Ivor McGettigan gives an overview of the growing demand for ‘branded’ private education in the Middle East. Successful entrants to the sector will have built their local knowledge carefully.

Why set up in the Middle East?

The Middle East, particularly the gulf region, continues to offer a promising market for international schools to establish a presence. The demand for quality education in the region continues to grow, driven by factors including favourable demographics, ambitious economic development plans, increased foreign investment, and a focus on improving the standard of education.

Despite an increase in the supply of international schools, the demand remains largely unmet in most gulf countries.

This presents a significant opportunity for educational institutions to establish a presence in the region and capitalise on the favourable market conditions.

Factors to consider before setting up

An international partner school brand (“Brand”) should consider the following matters at the outset:

Focus. Which territories/regions will be considered? Are the Board of Governors fully behind this choice?
Brand engagement. What level of engagement is the Brand contemplating? Consider the spectrum from franchise to operating company.
Advisors. Is the Brand going to engage external advisors to help navigate them on the journey and if so, who? Business consultancy and legal support should be considered.
Research. Conducting thorough research is essential when considering entering the education sector in the Middle East. This involves understanding the regulatory landscape and conducting due diligence on potential partners. Even with a ‘light touch’ franchise arrangement, the Brand will want to protect its reputation and therefore conducting some form of due diligence is a must.

When conducting due diligence on potential partners, consider their track record in the education sector, their financial stability, and their commitment to the long-term success of the project. Additionally, as land acquisition can be a significant challenge in some Middle Eastern countries, it is important to research the availability of land in the target location and identify partners who can contribute land if needed. Whilst company information can be opaque in the region there are ways to conduct effective background research through trusted advisors.

Business and culture

When setting up an international school in the Middle East, the Brand will be interacting with regulatory bodies and potential partners. Building relationships with key stakeholders is crucial in the region.

Familiarity with cultural nuances is also essential for successful negotiations in the region, so it is important to be mindful of local customs, etiquette, and communication styles. Oftentimes a red line for the Brand- e.g., putting its own capital into the project- may be seen merely as an opening position by the local investors. Similarly, it is important to speak to the investor’s key decision-maker at an early stage, which in a family conglomerate is likely to the patriarch/matriarch of the group, as otherwise valuable time can be wasted.

What does an international school deal look like in the region?

The structure of a deal will be broadly similar to international school projects in other jurisdictions. If an agreement is reached with an investor, the most common types of deals that are entered into include:

License agreements – whereby the new school is given a license to use the Brand’s intellectual property and brand;
Management agreements – in which the Brand receives a fee for lending their know-how and management skills to the new school (this can be rolled into a licence and management agreement); and
Shareholders agreements – where the Brand receives equity in the new school.

Intellectual property considerations

Needless to say, it is important for the Brand to protect their intellectual property once they are semi-serious about the market. Registration of the school’s trademarks would be the first step to take in order to obtain protection. The cost of registering a trademark varies across the Middle East, but would range between approximately USD 1,000 – 3,000.

Private sector workforce nationalisation

The Gulf region is witnessing a growing trend of private sector workforce nationalisation initiatives. These initiatives aim to increase the number of local citizens employed in private sector organisations and is driven by a desire to reduce foreign labour dependence, create job opportunities for locals, and foster a more sustainable domestic workforce. In some countries in the region, there are specific nationalisation quotas that apply to the education sector. Awareness of the specific regulations in each country is recommended, which your legal advisors can do.

International aspiration and local knowledge

Despite the presence of a number of well-established international brands in the region, the private school sector in the Middle East is dynamic and will continue to grow in the coming decade.

In our view there is room for new brands to establish themselves successfully, but with high ambition comes the need for down-to-earth local knowledge in order to enter the market successfully: given the current pace of change, this has never been more important.

Ivor McGettigan is a partner at Al Tamimi, a leading regional corporate legal practice, based in Abu Dhabi. He chairs the firm’s Education Sector Group. Prior to moving to the region, Ivor was a partner in a boutique firm in Ireland which focused on the education sector.

He can be reached at I.McGettigan@tamimi.com

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