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First LBO in For-Profit Education

Posted on Monday, Mar 6th 2006

WSJ Reports that Providence Equity Partners and Goldman Sachs are about to purchase Education Management Corp. (Nasdaq: EDMC) for $3.4 billion.

Education Management runs 72 primary campuses across the U.S. and Canada, training its 72,000 enrolled students in fields such as fashion, psychology and Web-site design. It also runs a small but growing operation providing online instruction.

Market leader Apollo Group (Nasdaq: APOL) did 2005 revenue of $2.3 billion on a total enrollment of 315,000 students, while rival Career Education Corp. had revenue of $2 billion and 104,000 students. In the fiscal year ended June 30, 2005, Education Management had net income of $101.6 million, or $1.35 a share, on revenue of $1.02 billion, and ranks third in the for-profit education market.

Apollo operates the famous University of Phoenix chain of educational campuses, and has recently had some hiccups, including the resignation of its long-time CEO Todd Nelson. The stock slid to a 52-week low of $47.27. It is rising again, today, on speculation that other Private Equity deals might happen in the for-profit education sector, and APOL ranks at the top of that list.

Another interesting company waiting in the wings to go public soon is Capella Online University. The fast-growing company operates Capella University, an online university that offers undergraduate and graduate degree programs in business, organization and management, education, psychology, human services, and information technology. More than 13,000 students are enrolled in the school, which employs about 740 faculty members. Students seeking doctoral degrees account for 47% of enrollment. Nearly 70% of revenues are from federal student financial aid programs.

Federal financial aid, in fact, is boosting the entire sector, from primary education (Sylvan via NCLB) to higher education (Capella, Apollo, etc.).

It amazes me that Silicon Valley doesn’t aggressively play in this sector!

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