Education Wrap: Buyout Firms Educate Themselves in 2000 –

While the U.S. Senate today begins confirmation hearings for Secretary of Education Designate Rod Paige, buyout funds will likely just continue treating the education market like it did all last year: with an enormous amount of interest. Indeed, while LBO players disagreed on everything from investment strategy to political policy last year, they all seemed to agree that education-related investments are easy on the portfolio and, as such, are in very high demand.

Not surprisingly, traditional education and training industry players like Leeds Equity Partners and Warburg Pincus & Co. returned for a new crop of education-related companies last year. What was more interesting, however, was that a variety of fresh faces also decided to hit the books.

Those private equity firms looking into education companies have found several avenues to follow. One of the most desirable education opportunities, particularly in the first half of the year, were e-learning companies. North American Funds – a Chicago-based manager of funds for investors such as Ameritech, University of Texas and the MacArthur Foundation – kicked off the year by funding wwwrrr Inc., an online training, communication and Internet company. Then, in May, New York-based Forstmann, Little & Co. invested $35 million in a minority stake of Capella Education Co., the for-profit parent company of Internet-based Capella University. Hampshire Equity Partners got its feet wet leading a $35 million investment in, a b-to-b e-learning company.

Forstmann Little and Hampshire Equity had both been attracted to the industry for some time and found what they had been looking for in these acquisitions. Education and training is estimated to be a $700 billion industry and, although Internet education is a sliver of that, it is poised to transform the way people seek further education because it is effective and convenient, said Joshua Lewis, a general partner at Forstmann Little, at the time of the acquisition.

Both firms said that they would consider making more investments in the education space.

Traditional Players Stay In Game

Leeds Equity, whose name is synonymous with education investing, teamed up with J.W. Childs Associates LP for a more direct route to education this year with a $125 million investment in Ross University, a medical and veterinary university based in St. Kitts. Leeds Equity is currently investing its third education-focused fund, which closed at $160 million in 1999, and expects to launch a fourth by next quarter.

“In the one year since we have been investing from this new fund we have just seen an extraordinary and very robust and diversified deal flow,” said Jeffrey Leeds co-founder and principal at the firm. “And at a time when it is challenging for people to do traditional buyouts because of the financing environment, our flexibility in terms of the kind of deals we do and our industry focus gives us access to lots of deals.”

Warburg Pincus and Credit Suisse First Boston Equity Partners also went straight to the source to invest in education. The former invested $25 million in Aspect Holding, a company that combines Sylvan Learning Systems’ Aspect and Nord Anglica Education’s International Language Academies which operates schools in the international English Language Travel (ELT) business sector.

Nick Lowcock, a managing director at Warburg Pincus, said in October, “the ELT market is seeing significant growth, driven by globalization and increased accessibility to international travel. Approximately 1.2 million students currently spend a total of $2.7 billion on services provided by the industry.”

CSFB Equity Partners in February led an investor group in a $28 million investment in Advantage Schools Inc., a company that operates charter public schools in urban areas nationwide. Hartley Rogers, a managing director and co-head at CSFB, said that the firm saw “extraordinarily high” customer demand in the education market. “If you look at the . . . Advantage schools they will have 500 kids enrolled and another 300 to 400 on the waiting list,” he said. “This is a result of an incredible demand for high quality of education.”

Hartley said the firm would likely make further investments in education companies.

Broader Focus

Finally some firms have taken the scenic route, investing in industries that serve or benefit from the education industry. In May Wellspring Capital Management LLC closed two deals to launch a music education platform. The firm acquired Brook Mays Music Co. and McFayden Music Inc., retailers of musical instruments and accessories, which serve the music education market, committing $25 million in equity for both companies. Wellspring was particularly attracted to the companies due to the prospects of the music education industry, said Greg Feldman, a managing partner at Wellspring, citing its fragmentation, growth, and the increasing awareness of its importance in education.

In its second control deal of the year, Leeds Equity Partners III acquired DataMark Systems, a Salt Lake City-based company that provides direct mail and other marketing services to post-secondary education providers, for approximately $20 million. DataMark prospers from the growing strength of those companies that cater to adult education, such as Internet universities and training programs. “There has been an explosion of companies that are providing alternative adult education and those companies require tons of outsourced services,” said Leeds.

Christa Fanelli can be contacted at