Financial due diligence for Multi Academy Trusts (MATs)

Over the next few years about 1000 schools will be forced or encouraged to become Academies. Many of these will be sponsored by existing Multi Academy Trusts (MATs) or will themselves form a MAT. In the last couple of years we have seen a growth in much larger MATs comprising 15 or more schools. 

We are also starting to see the Department for Education issuing Financial Notices to Trusts where there are concerns about a weak financial position and/or poor financial management. 

Existing MATs, schools and Academies looking to join a MAT or sponsor a school should all undertake due diligence before proceeding in order to understand what they are taking on or joining. The trustees of an existing MAT will conduct due diligence on each new school or academy they take on, whilst the trustees of a school joining a MAT must ensure they have assessed the financial stability of the sponsoring entity. This is also relevant as we now see Universities sponsoring Sixth Form Colleges and due diligence is required by the University on the Colleges and also by the Colleges on the University. 

Due diligence will cover academic performance, financials, organisational, legal and commercial matters. 

The Department for Education suggests trustees consider appointing external advisers to conduct financial due diligence. 

Financial due diligence should cover:

  • Review of the financial performance of the last three years 
  • Review of financial projections including stress testing key assumptions
  • Consideration of capital expenditure in the past, committed future projects (potentially transfer can be delayed until approved projects are completed) and the possibility of existing PFI commitments
  • Analysis of staff costs including pension obligations
  • Review of financial processes, internal controls and resource in the finance team
  • Consideration of revenue surpluses and deficits 
  • Any contingent liabilities
  • Taxes as relevant e.g. PAYE and VAT

As financial pressures on Academies increase it is important that the financial due diligence is collecting the information that will be needed to ensure the financial efficiencies of a MAT are obtained including scaling up infrastructure and rationalising staffing.

The financial due diligence checklist must be considered alongside the legal due diligence to ensure nothing falls through the gap.

In a recent project the Ensors corporate finance team were engaged to conduct financial due diligence on two sixth form colleges who were joining a MAT set up by the local University. We were instructed to conduct financial due diligence on each College for the benefit of the other College and also on the University to ensure it could meet its future financial commitment to the MAT. 

Feedback received from the client was as follows:

“Thank you for your report and presentation [on Financial Due Diligence re proposed Multi Academy Trust] yesterday. We are very grateful for the rapid turnaround of your work – I’m sure you understand better than most the way these things work and the crazy timescales.”

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