Transcript Postsecondary Education

Introduction
 The Industry Now and What Our Buyers Like
Tom Flaherty, Kuhn Capital/The Roundstone Group
 Trends in Business Services
Amy LaBan, Lake Capital
 Trends in Software
Howard Smith, First Analysis
 Trends in Transaction Processing
Franco Turrinelli, William Blair
Kuhn Capital + The Roundstone Group
M&A Today
The Tech, Information and Business Services Terrain
Now and Next Panel
February 12, 2004
Kuhn Capital + The Roundstone Group
Overview
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Who Are Our Buyers?
What Do Our Buyers Like?
The Dilemma
What To Do?
The Market Now
What Industries Do Our Buyers Like?
Kuhn Capital + The Roundstone Group
Who Are Our Buyers?
 Private equity firms seeking platform
companies
 Portfolio companies seeking add-on
acquisitions
Kuhn Capital + The Roundstone Group
What Do Our Buyers Like?
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Recurring revenue streams
$50 million or more in revenue (platform)
Leveragable technology or low cost resources
Moderate to high growth
Strong management
Good cash flow/EBITDA margins
Ability to use financial leverage
Valuation (5x or 6x EBIDTA)
 for the right platform will consider up to 10x EBIDTA
Kuhn Capital + The Roundstone Group
The Dilemma
 In today’s market, these companies are
few and far between at reasonable
prices
Kuhn Capital + The Roundstone Group
The Market Now
 Public valuations in certain sectors are currently high (Transaction
Processing, Post Secondary Education, Offshore - India)
 Vast amount of available private equity
 Large private equity firms with substantial capital need to do larger deals
 Private equity firms have difficulty competing with strategic buyers on
valuations
 Relatively better opportunity for financial returns in small to medium
sized companies
Kuhn Capital + The Roundstone Group
What To Do?
 Be disciplined
 Look to small to medium sized
companies where valuations are more
reasonable
 Consider turnaround situations
 Assume greater operational risk
Kuhn Capital + The Roundstone Group
What Industries Do Our Buyers
Like?
 Transaction Processing
 Insurance BPO Outsourcing
 Offshore (IT and BPO Outsourcing)
 Post Secondary Education
Kuhn Capital + The Roundstone Group
Why Post Secondary Education
Market?
 Large, fragmented market
 Good demographics
 Barriers to entry - accreditation, Title IV regulations
 Solid economics - pricing, margins, and government student
loans
 Valuation high for large public companies but still reasonable
for smaller private companies
 Opportunities to create shareholder value
Kuhn Capital + The Roundstone Group
Total Expenditure
 Post Secondary education market is greater than $260 billion,
accounted for 2.8% of GDP in 2000.
Source: US Department of Education; LEGG MASON: Industry Analysis Summer 2003
Kuhn Capital + The Roundstone Group
Enrollment
 Fall enrollment increased from 12.1 million students in 1980 to 15.3
million in 2000, and is projected to reach 18.2 million through 2012
Total Fall Enrollment in Degree-granting Institutions
1980-2000
M illio n s
Enrollment (million)
16 .0
14 .0
12 .0
10 .0
8 .0
6 .0
19 8 0
19 8 5
Public
19 9 0
Private Not-for-profit
19 9 5
Private For-profit
Source: National Center for Education Statistics: Digest of Education Statistics, 2002.
Kuhn Capital + The Roundstone Group
2000
Market Players
 During the 2001–02
academic year, there
were 6,458 Title IV
participating
institutions in the US,
of which 37% (2,418)
were for-profit private
institutions
Title IV Institutions in the US
academic year 2001-02
Private Forprofit
37%
Public
33%
Private Notfor-profit
30%
Public
Private Not-for-profit
Private For-profit
Source: National Center For Education Statistics, Post Secondary Institutions in the
United States: Fall 2001 and Degrees and Other Awards Conferred: 2000–01.
Kuhn Capital + The Roundstone Group
Tuition Pricing
 College tuition and fees have increased over the last 23 years at a CAGR
of 7.1% for private four-year institutions, and a CAGR of 6.4% for
public four-year institutions
Average Tuition and Fees at Four-Year Institutions,
1980-2003 (Enrollment-Weighted)
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
1980
1982
1984
1986
1988
1990
Private Four-Year
1992
1994
Public Four-Year
Source: Education Commission of the States, Trends in College Pricing 2003
Kuhn Capital + The Roundstone Group
1996
1998
2000
2002
Major Players
Ticker
# of
Campuses
Enrollment
Total
Programs
Apollo Group
APOL
67
196,600
Bachelor –
Doctorate
Aug 03’
Career Education
Corp
CECO
74
63,000
Diploma –
Master
Dec 03’
Corinthian Colleges
CCDC
125
43,229
Diploma –
Master
Jun 03’
DeVry, Inc
DV
26
41,075
Associate –
Master
Jun 03’
Education
Management Corp
EDMC
47
39,977
Non-degree –
Doctorate
Jun 03’
ITT Educational
Services
ESI
74
33,153
Associate Bachelor
Dec 03’
Strayer Education, Inc
STRA
25
13,928
Associate –
Master
Dec 03’
Concorde Career
Colleges
CCDC
12
5,579
Diploma –
Bachelor
Dec 03’
Company
Source: Corporate reports
Kuhn Capital + The Roundstone Group
Report Date
Corporate Valuation
Company
EBITDA
Revenues (ttm)
(ttm)
Apollo Group
Nov 03’ $1,440m
Career Education Corp
Sep 03’
Corinthian Colleges
EBITDA
P/E (ttm)
Margin
EBITDA
Multiples
as of 2/2/04
$473m
33%
52.5
26 x
$1,050
$201
19%
51.9
25 x
Dec 03’
$644
$145
23%
37.4
19 x
DeVry, Inc
Sep 03’
$732
$134
18%
39.5
16 x
Education Management Corp
Sep 03’
$681
$144
21%
42.8
17 x
ITT Educational Services
Sep 03’
$523
$116
22%
44.1
20 x
Strayer Education, Inc
Sep 03’
$138
$53
39%
54.9
21 x
Concorde Career Colleges
Sep 03’
$71
$11
15%
28.6
14 x
24%
44.0
20 x
Average
Source: Corporate reports and The Roundstone Group estimations
Kuhn Capital + The Roundstone Group
Private Equity Groups
Private Equity Portfolio Company
Arena Capital
International Education Corp
Great Hill Partners
High-Tech Institute
GTCR
ForeFront Education
Add-on Acquisitions
United Education Institute
Advanced Career Training
Cambridge College
The Bryman School
Allied (Medical) College
Berks Technical Institute
Schuylkill Insitute of Business &
Tech
Florida Technical College
The NewSchool of Architecture &
Design
Platt College (CA)
Illinois School of Health Careers
Source: Corporate Reports
Kuhn Capital + The Roundstone Group
Private Equity Groups
Private Equity Portfolio Company
Huron Capital
Delta Educational Systems
Prospect Partners
Education Corp of America
William Blair Capital US Education Corp
Add-on Acquisitions
Career Technical College
McCann School of Business &
Technology
Miami-Jacobs Career College
Miller-Motte Technical College
The Creative Circus, Inc
Virginia College
Medical Career Center
VC Tech
Apollo College
American Institute of Health
Technology
Silicon Valley College
Western Career College
Source: Corporate Reports
Kuhn Capital + The Roundstone Group
M&A Activities
Strategic Buyers
Career Education Corp
Education Management Corp
Sylvan Learning Systems
Corinthian
Concorde Career College
DeVry Inc
Acquired companies in 2002-03
Western School of Health & Business
Careers
Formastrat SA
Whitman Education Corp
Missouri College
Dubrulle International Culinary & Hotel
US Peroxide
Institute
Bradley Academy for the Visual Arts South University
American Education Centers
Institute of Digital Arts
UNAB; AIEP
Marbella
National Technological University
Walden
Glion Group SA
Universidad de las Americas (20%)
CMA Kitchener Campus
Learning Tree
CDI Education Corp
Wyo-Tech Acquisition Corp
Career Choices Inc
National School of Technology
East Coast Aero Tech LLC
North Texas Professional Career
Extended Health Education
Institute
Ross University
Source: Corporate reports
Kuhn Capital + The Roundstone Group
Selected Transactions
Buyer
Corinthian
Education Management
Corp
DeVry Inc
Career Education Corp
Wellspring Capital
Sylvan Learning Systems
Target
CDI Education Corp
Career Choices Inc
East Coast Aero Tech LLC
Wyo-Tech Acquisition Corp
National School of Technology
American Education Centers
South University
Ross University
Whitman Education Corp
Vatterott College
Glion Group SA
Date
Purchase
Price
($ million)
6/24/2003
$37
6/10/2003
$56
6/10/2003
$59
7/1/2002
$84
4/1/2002
$14
6/24/2003
$116
4/29/2003
$50
3/19/2003
$310
3/26/2003
$245
1/17/2003
$105
9/4/2002
$16
Average
Source: Corporate reports and The Roundstone Group estimations
Kuhn Capital + The Roundstone Group
Sales x
2x
2x
3x
5x
2x
2x
2.3 x
EBITDA x
7x
9x
7x
9x
5x
10 x
10 x
12 x
15 x
6x
11 x
9.0 x