"A child's learning is the funtion more of the characteristics of his classmates than those of the teacher." James Coleman, 1972

Wednesday, March 18, 2009

Arne's Army of Moneyed Parasites Is On the Move

With their hundreds of billions stolen from the AIGs of the world, for which taxpayers now hold the bag, the mega-swindlers and thieves are looking for new opportunities to invest all the dough they have stolen during the Bush years of legalized looting. Chief target: educational institutions that are now struggling from that very latest round of capitalists gone wild. A clip from Forbes (ht to Ken Libby):
. . . .Distressed turnaround situations are becoming increasingly common in higher education. Good schools, hit with financial stressors, are in need of serious outside help, and many are finding it from financial investors, like me and my firm.

Smart firms bring more than just financial aid to the schools. They institute financial discipline, increase marketing to build on schools' historic missions. Academics are given resources to teach. Students become the center of attention rather than faculty. Investors know that they will lose their money if the quality of education isn't the best available, so they focus tremendous resources on making sure quality is the highest priority.

Another impressive aspect of online education is that these entities do not require a lot of capital. Our experience is that $15 million invested over a three- to four-year period will generate a company that is worth $300 million to $500 million in the public marketplace.

Once an investment team gets the school profitable, larger private equity firms step in with growth capital and then finally comes the IPO, or the "endowment of the future."

During this economic downturn and throughout the bear market, one pocket of market strength has been in the for-profit schools. One of our portfolio companies, Grand Canyon Education, is a bit of a rarity. It completed an initial public offering last fall on Nov. 20, 2008, breaking the longest IPO dry spell in 33 years on Nasdaq. The stock still trades 25% higher than its offering price. Grand Canyon earned $6.7 million on revenue of $161.3 million in 2008, up significantly from net income of $3 million on $99.3 million in sales in 2007.

There are a handful of online education-oriented companies that are currently doing a nice job holding their own in the stock markets, including Capella Education , Apollo Group and American Public Education. Recently, Bridgepoint Education has filed its S-1 to go public.

Fueling the bullish trend for online education is America's need to retool its workforce in order to compete in the global marketplace. In the Great Depression, the government asked us to pick up shovels to rebuild America. Now, in this economic crisis, the Department of Education, headed by U.S. Secretary of Education Arne Duncan, is the key government agency to help people learn new skills so the U.S. can compete in the global marketplace. . . .

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