December 12, 2018

Education Companies for PE Investors–Special Invitation for July 19

edu conferenceI’m very pleased to be a partner of The Capital Roundtable for its full-day annual winter conference on “Private Equity Investing in Education-Focused Companies.

 

Coming up on Thursday, July 19, in New York City, the theme of this conference is
How PE Firms Are Engineering A New Generation of Education Companies.

 

I’m reaching out to you, as a friend of my firm, to offer you a special VIP rate — $500 off the standard rate.  Your price to register is only $995! To register at this special rate, please contact Julie Berger at 212-832-7300, ext.0, or jberger@capitalroundtable.com.

You’ll hear from more than 20 private equity investors and bankers, and education company managers discussing how they’re partnering with schools, corporations, and other kinds of investors to build “next-gen” companies that can drive the remodeling of the U.S. education system and thereby deliver better outcomes for students and better returns for investors.

Click here to learn more about the program.

Chairing the conference is Shoshana Vernick, a co-founder of Sterling Partners’ Education Opportunity Fund. She joined Sterling in 2003, and has devoted her tenure on the investment team, working on all aspects of the deal process including identification and due diligence, and management and oversight of the active portfolio.

At this conference, you’ll enjoy exceptional networking opportunities. The agenda includes ample time, with session breaks and a buffet lunch, to exchange ideas, swap business cards, and form new relationships.

 

To register, please call Julie Berger, at 212-832-7300 ext. 0, or email her at jberger@capitalroundtable.com

 

Please be sure to mention MarketDrivenEDU to receive this low VIP rate.  And note this rate is not available online. 

Kaplan Sells it’s 38 campus to Education Corporation of America

education corp

Graham Holdings, the former parent company of The Washington Post, has agreed to sell 38 physical campus operations of its Kaplan education business to Education Corporation of America, a Birmingham, Ala.-based operator of private accredited colleges in the United States.

The deal, made public Thursday in a Securities and Exchange Commissionfiling, includes all Kaplan College campuses. The all-stock transaction would give Kaplan a preferred-equity interest in Education Corporation of America. Financial terms were not disclosed.

 

Link: http://www.washingtonpost.com/business/capitalbusiness/graham-holdings-to-sell-campuses-that-make-up-kaplan-college/2015/02/13/a767f566-b3a5-11e4-827f-93f454140e2b_story.html

 

International Education Corporation Buy’s Florida Career Colleges

iecInternational Education Corp. operates the UEI schools a heavy west coast operation has acquired a limited number of schools from Education Training Corporation.  In addition, they have also taken over the corporate head quarters.

Link: http://articles.sun-sentinel.com/2014-08-23/business/fl-anthem-education-layoffs-20140823_1_florida-career-college-job-creation-fti-consulting  

From the financial community Updated Sector Thoughts as Gainful Employment Saga Continues

william blair 2

Updated Sector Thoughts as Gainful Employment Saga Continues

Viewpoint: The second set of negotiations for “Gainful Employment 2.0” resulted in no
consensus, as expected, but rather a contentious few days between advocates with little
common ground followed by a decision to extend the rule-making sessions into December,
with the Department of Education agreeing to provide data and support for its proposed
student loan default and repayment metrics in the meantime. We believe that most
investors have begun and will continue to ignore the tail risk the rule presents to private
sector schools in light of the significant regulatory risk that is already embedded in the
stocks, the extended duration of the gainful employment negotiations (four years and
counting, with no potential program closures until 2019 or later), the increasing likelihood
of a successful legal or regulatory challenge from the private sector schools that would
block some or all pieces of the final rule, the numerous positive changes already made in
the sector to improve student return on investment and school regulatory profiles, and the
recent strength in fundamentals and associated recovery in the stocks

Where Do Things Stand With Gainful Employment?
The Higher Education Act (the governing document for postsecondary schools that access
the government’s Title IV student loan program) states that for-profit college (both
certificate and degree) programs and nondegree (certificate) programs at nonprofit
colleges must prepare students for “gainful employment.” In 2009, a few key staffers
(who are no longer involved in the process) at the Department of Education (Ed) saw big
enrollment and profit growth and anecdotal evidence of student abuse at for-profit
colleges and decided that something needed to be done. In a bit of an end-around attack,
they reinterpreted the simple phrase “gainful employment” into a set of rules that created
complex student loan debt-to-income and repayment thresholds for for-profit college
students, which, if not met, could result in a loss of access to Title IV loans (which
accounts for about 80% of the sector’s revenue).

In a perfect storm for the sector, the introduction of potentially game-changing regulation
coincided with peak U.S. unemployment (and the end of an increase in college
applications associated with these job losses); the lapping of significant Pell grant and
Title IV loan limit

expansions from 2007 to 2009; the tail-end of a dramatic spike in forprofit
school capacity, programs, and tuitions along with an influx of private equity
dollars into the sector; and the beginning of a national conversation questioning the value
of a college degree as student loan debt surged near $1 trillion.
With the threat of largely unquantifiable legislation and the associated change in the
playing field, the enterprise value for the 15 publicly traded companies in the sector
dropped from $46 billion in the first quarter of 2010 to $8 billion in late 2012 as new
enrollment declined and total enrollment and profitability followed (enrollment is down
roughly 30% from peak levels and operating margins are down from the mid-20s to the
low double digits). Not until early this year did the sector show signs of a recovery, with
starts inflecting toward positive (and turning positive for a third of the schools) on price
reductions and a tailwind from a bit more regulatory clarity, and an investor recognition
that the schools were adapting business models and the 30% of the market capitalization
that lay in net cash was safe. The stocks have outperformed the market by 60% this year.

In the four years since gainful employment rule-making was introduced, Ed negotiated a set of harsh debt-to-income and
repayment draft rules in 2010, introduced a much softer final rule in 2011, released supporting data in 2012 that saw most of
the schools pass the tests with flying colors on surprisingly strong debt-to-income metrics, and then later in 2012 saw a
private sector college lawsuit strike the rule down on a federal judge’s view that Ed’s proposed repayment metric was
“arbitrary.”
Ed went back to the drawing board and began another round of negotiated rule-making in fall 2013. Ed’s most recent
proposal, as in 2010, was a set of harsh debt-to-income and loan repayment standards. A (likely softened) final rule is
expected to be released late in 2014 with the rules going into effect in 2015. At-risk programs could be eliminated in 2019 and
beyond.
Is There Risk for the Stocks?
Unlike in 2010 and 2011, when education stocks hung on every move from the Department of Education and legislative
opponent Senator Tom Harkin (D-Iowa) and 10% moves on policy speculation were a frequent event, over the past year, the
stocks have become immune to policy noise, good or bad. We note that attendance from both the buy- and sell-side at the
latest round of negotiations was a fraction of that seen in previous rounds. In many ways, the stocks have been left for dead
and remain uninvestable in the eyes of many long-only investors who were burned by the sector in past years. In that context,
we remain long-biased on the space, and note that:
1. New enrollment is gradually improving, with a third of the stocks in the space growing starts, a third in the down
single-digit range, and the rest getting “less worse.”
2. Most schools in the space have increased the value proposition of their degrees through brand-building efforts,
stronger retention and graduation, improved job placement rates, price cuts, enrollment restrictions like mandatory
orientation, low-ROI program elimination, and even money-back policies on first classes.
3. Public colleges have increased prices in real terms in excess of 5% annually over the past decade, and the increases
have continued despite declining enrollment, offering for-profit schools a bit of a price umbrella.
4. Most schools in the space have moved out (either partly or entirely) of the lead aggregator channel, which has
sometimes produced low quality student inquiries and at times resulted in high dropout rates (churn).
5. Retention increases at the schools have been largely masked by the graduation “bubble,” a result of the large incoming
classes of students in the 2008 to 2010 period reaching the end of their tenure at the schools, but these retention
gains should eventually allow total enrollment to grow well in excess of new enrollment and produce strong
incremental margins even on moderate top-line growth.
6. “Halo” schools like Grand Canyon University (LOPE $44.15; Outperform), which offers a traditional ground campus
and Division 1 athletic programs, and Capella University (CPLA $64.30; Outperform), one of the highest-quality online
degrees in the country (as recognized by its accreditor), are repairing the sector’s image among both policy-makers
and investors.
7. Many schools in the space have cut significant cost out of the business, but the magnitude of the cost cuts has varied
widely, leading us to believe there is significant further cost-cutting potential and margin leverage ahead for many
schools.
8. The potential range of negative regulatory outcomes has narrowed significantly, with the focus on gainful
employment and 90/10 (a legislative effort to exclude military funding dollars from the 10% of nonfederal money
required by this ratio) resulting in a much more manageable set of outcomes than the wide range of a few years ago
(with proposed marketing spending or even operating margin caps).
9. The sector trades at just over six times EBITDA, a significant discount in a market where inexpensive stocks are
increasingly hard to come by.

But we note that from an operator’s perspective, gainful employment still presents substantial risk—in its most punitive form,
the proposed rules could result in the closure of more than 10% of for-profit programs and likely costly changes even to
passing programs. While we believe most management teams remain in a holding pattern and are not making any operational
changes in the near term, we believe the rulemaking

Link to full report: https://www.rdocs.com/getrdocnologin.asp?p=144937

Timo Connor, CFA

William Blair & Company, L.L.C.

Government shutdown results in the cancellation of Rule making session scheduled for October 21-23rd

ed_mn_logo

Negotiated Rulemaking 2013-2014 — Gainful Employment cancelled or at least postponed

Meetings

Session 1: September 9-11, 2013
Session 2: October 21-23, 2013 * — CANCELLED

*Because of the federal government shutdown due to a lapse in appropriations, the second Gainful Employment negotiated rulemaking session that was scheduled for October 21-23 has been cancelled. Once the government reopens, the session will be rescheduled. Please monitor this website or the Federal Register for information about the rescheduling of Session 2.

http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/gainfulemployment.html

 

House Members Introduce Bipartisan Bill to Eliminate Burdensome Higher Education Regulations

Higher Education and Workforce TrainingWASHINGTON, D.C. | July 10, 2013 –

Subcommittee on Higher Education and Workforce Training Chairwoman Virginia Foxx (R-NC), House Education and the Workforce Chairman John Kline (R-MN), and Rep. Alcee L. Hastings (D-FL) today introduced the Supporting Academic Freedom through Regulatory Relief Act (H.R. 2637).

Building on bipartisan legislation that passed the House last year, H.R. 2637 will repeal three unnecessary federal regulations that restrict choice and opportunity in higher education: the gainful employment regulation, the state authorization regulation, and the federal credit hour regulation.

Rep. Foxx said, “These regulations are stifling pioneering institutions at a time when forward-thinking solutions are desperately needed. The Supporting Academic Freedom through Regulatory Relief Act will remove the threat gainful employment, state authorization, and federal credit hour regulations pose to student choice, innovative schools, and an American economy that stands to benefit from responsive higher learning institutions. Republicans and Democrats should toss these bad ideas aside and work together to strengthen higher education for students and taxpayers while maintaining the flexibility and choice that set American colleges and universities apart.”

“Members on both sides of the aisle have repeatedly expressed concerns these so-called ‘program integrity’ regulations could limit education and job training opportunities for millions of students,” Chairman Kline said. “Even federal courts have weighed in, striking down portions of the state authorization and gainful employment regulations – yet the administration continues to press forward with these ill-conceived regulations. Enough is enough. The Supporting Academic Freedom through Regulatory Relief Act will eliminate the onerous gainful employment, state authorization, and credit hour regulations once and for all, and prevent the Department of Education from piling more burdensome regulations on higher education institutions.”

“We need a highly-skilled workforce capable of competing in a global economy.  As I have said many times before, the Department of Education’s suggested approach on gainful employment will disproportionally harm nontraditional and lower-income students.  To me, it is misguided and would cut-off the ability of millions of student to afford school and job-training based on a formula of projected future earnings,” said Rep. Hastings.  “The Supporting Academic Freedom through Regulatory Relief Act will take the necessary legislative action to eliminate these burdensome regulations.”

The Supporting Academic Freedom through Regulatory Relief Act will:

  • Permanently repeal the gainful employment regulation, which would levy reporting burdens on community colleges and proprietary schools and force administrators to seek federal approval before creating new programs.
  • Permanently repeal the state authorization regulation, which forces states to follow federal requirements when deciding whether to grant an institution – including those offering online education programs – permission to operate within the state.
  • Permanently repeal the credit hour regulation, which establishes a federal definition of a credit hour, providing the government increased control over institutions’ academic affairs.
  • Amend the incentive compensation regulation to ensure third party service providers are allowed to enter into tuition sharing agreements with nonprofit colleges and universities to aid in the development of distance education platforms.
  • Prohibit the Department of Education from issuing additional higher education regulations in several of these areas until after Congress reauthorizes the Higher Education Act.

To learn more about H.R. 2637, visit www.edworkforce.house.gov/RegulatoryRelief. This is sold to write the possibility of the most people have proficient writers have poor composition blunders. Organization is not have poor composition blunders. Organization is must. This guarantees that the author and typing error using the author and other assignments are providing essays, proposals, reports, and plagiarism . http://paperell.com/top-writers A quality paper depends on the customer confidentiality. We also verify those papers for the industry. We guarantee that we utilize the customer. To focus a subject for the required vocabulary. It is very crucial part. Different essay papers is intriguing for getting the grounds that the .

Sterling Partners Acquires PlattForm Advertising from Arlington Capital Partners

Congrats to Michael Platt as Plattform has been aquired by Sterling from Arlington.

CHICAGO--(Business Wire)--
Sterling Partners, a growth-oriented private equity firm with a long history of
successful investing in the education sector, has acquired PlattForm
Advertising, a leading provider of comprehensive marketing and
enrollment-management services to colleges and universities. Financial details
of the transaction were not disclosed. 

Headquartered in Lenexa, Kan., PlattForm is a pioneer in the field of marketing
for higher education and provides a full suite of marketing services to manage
and execute all aspects of a school`s marketing strategy. Through the use of
rigorous data and analytics, PlattForm creates, manages and executes
mission-critical marketing campaigns for both career schools and traditional
colleges and universities.

Click Here for full release

A judge ruling vacated a core element of the “gainful employment” rule!

A federal judge’s weekend ruling vacating a core element of the “gainful employment” rule was welcomed Monday by the for-profit college industry.  Many see this as vindication of their challenge to the controversial rule.

The decision however, affirmed the Department of Education’s authority to issue the rule, and advocates for tougher regulation including calling on the government to respond with new guidelines that would not be rejected for lack of a “reasoned basis.”

In striking down the regulations the court stated the following,
“The debt repayment standard was not based upon any facts at all. No expert study or industry standard suggested that the rate selected by the Department would appropriately measure whether a particular program adequately prepared its students. Instead, the Department simply explained that the chosen rate would identify the worst-performing quarter of programs…That this explanation could be used to justify any rate at all demonstrates its arbitrariness…This is not reasoned decision making. (“[I]n the absence of any reasonable justification,” the court “must conclude that this aspect of the [rule] is arbitrary and capricious.”
APSCU v. Duncan, pg. 31, 11-1314 (RC) (6/30/12)

Weighing Next Steps

A spokesman for the Education Department said Monday that officials there would decide “very shortly” whether to appeal the ruling, develop new regulations, or “do both.”

the courts decision can be found here: https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2011cv1314-25 

chronicle article here: http://chronicle.com/article/Ruling-on-Gainful-Employment/132737/

APSCU letter to Arne Duncan in response to the ruling here: http://apscu.informz.net/apscu/data/images/documents/lettertosecretaryduncan07012012.pdf

 

EDU PE conference packed & mood optimistic !

Yesterdays Capital Round Table conference for PE investing in EDU was a full house.  It was good to see some many of the industry’s players together in one room discussing current issues & trends facing Education.  In addition, Anthony Miller Deputy Secretary and Chief Operating officer at the U.S. Department of Education was there to answer questions regarding current and pending legislation.  Tony was refreshingly honest when he said the the Department understands and acknowledges that for profit education providers are critical to reach America’s goal of education attainment.  He praised the continued innovation provided by the industry and welcomes more of the same.

2012 Issues to remember:

 

The Change

  • A change in the President will result in a new DOE
  • A change in the Senate will result in a new head of the Senate Sub-Committee
The Result
  • A favorable shift in regulations will lift the entire industry
The Caution
  • The momentum to outcomes is already underway and will not change.  Broadly, this is good for the industry

 

MOST Important The three rules – #1 Student Success, #2 Student Success, #3 Student Success

Long-term strong demographics and demand create a solid base for growth

Regulatory changes are largely complete in post-secondary while valuations remain at historic lows

Dramatic changes in traditional schools are underway

Real opportunities exist to build world-class companies

Great outcomes=Great businesses

The next conference for PE in EDU I believe is in June or July, it’s worthwhile to attend!

Career Education gets slammed, CEO resigns

CECOShares of Career Education Corp plunged 42 percent to their lowest in more than 10 years on Wednesday, a day after its chief executive resigned amid findings of improper placement practices, and increased accreditation risks.

The company also reported disappointing quarterly results 10 days ahead of schedule and said the decline in new student sign-ups will not improve in the near term.

At least two brokerages downgraded the stock to their lowest rating citing too many near-term risks.

FORCED EXIT?

Though the company did not tie the placement discrepancies to McCullough’s departure, analysts say he was kicked out for that very issue.

“The compliance issues were probably the main driver behind the CEO resignation,” analyst Dobell said. “An issue with compliance and honesty, particularly given McCullough’s background, was probably more than the board was willing to tolerate and more than McCullough was willing to stand for.”

McCullough was well respected and credited for cleaning up Career Education’s reputation and streamlining its operations, according to Robert W Baird analyst Amy Junker.

 

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