The Compliance Risks in a Higher Ed Acquisition Can Make or Break Your Deal
Most buyers entering higher education know they need guidance, but they misjudge just how much guidance they need. The regulatory exposure tied to a postsecondary acquisition can far exceed typical quality of earnings considerations.
What You Need to Know Before You Close
Most higher education acquisitions come with regulatory requirements that don’t show up in a standard financial review. Here’s what we help buyers understand:
OPE ID liability
When you acquire a school, you’re taking on its entire Title IV history. Past errors in financial aid processing can create significant liabilities in the future. We test the school’s compliance history before the deal closes so you understand what you’re inheriting.
Same-day balance sheet requirements
Federal regulations require a same-day balance sheet of the new consolidated entity to be submitted to the Department of Education for the day ownership transfers within at most 60 days of the change-in-ownership. We’ve conducted dozens of SDBS audits.
Letter of credit requirements post-close
The most common post-acquisition condition from the Department of Education is a letter of credit based on a percentage of the school’s prior-year Title IV revenue (typically 10-50%). Two of the primary considerations by ED are the Acid Test and Tangible Net Worth test reflected in the Same-day balance sheet. For buyers, this can represent a significant additional capital requirement. We work with clients to project both ratios as early in the process as possible so you can plan accordingly.
Composite score exposure
Post-close, a school’s composite score, calculated annually from its financial statements, determines its Title IV participation status. A score below 1.0 for any year post-acquisition has real financial implications. We model first year composite score projections as part of our due diligence work. For buyers expected to be required to post a letter of credit, we help project how long it will take for the requirement to be removed.
Our Transaction Services
We’ve been the primary due diligence partner on some of the largest higher education transactions in the country, including multi-hundred-million-dollar acquisitions. For a 30-person firm based in the Pittsburgh area, the size and volume of deals we’ve supported reflects the trust which attorneys, private equity firms, and strategic buyers place in our expertise.
- Title IV due diligence and compliance history review
- Same-day balance sheet projections
- Letter of credit requirement modeling
- Composite score projections and timeline analysis
- Ongoing audit and compliance support post-acquisition
Getting Up to Speed on Higher Education
If you’re new to the postsecondary space, we can help you understand how it works before you’re committed to a deal. We provide educational resources on the regulatory environment around Title IV, OPE IDs, composite scores, and Department of Education oversight so you can evaluate opportunities with a clear picture of what compliance will require.
Let’s Talk About Your Compliance Needs
Connect with our team to discuss how we can support your institution’s compliance and financial health.
