Remington College Tries to Score Better


By Steve Rosenbush For many people, the ideal college experience involves four years away from home at a campus dotted with ivy-covered buildings, studying a range of subjects that may or may not prove useful down the road. But the reality is that only 25% of Americans graduate from a traditional two- or four-year college -- ivy-covered or otherwise.

So what's the rest of America doing after high-school? For an increasing number of people, the answer is a career-oriented education at one of the nation's 5,000 for-profit colleges and technical schools. The largest and best-known is the Apollo Group's (APOL) University of Phoenix, a pioneer in online education. But other publicly held players like Career Education (CECO), Corinthian Colleges (COCO), and DeVry (DV) are big businesses, too. "It's one of those rare industries where you can do well and do good," says Nick Glakas, president of the Career College Assn., a trade group based in Washington.

HEALTHY MARGINS. Looking to do even better is Remington College. The Little Rock school, which offers a range of certificates and degrees in medical and technical post-secondary education and other fields, has put itself on the block, BusinessWeek Online has learned. "We're considering a transaction that would result in us being a larger company and give us the opportunity to grow at a faster rate," Remington President Jerry Barnett confirmed.

Industry executives say Barnett has hired investment bank Jefferies & Co. to run an auction. The bank wasn't immediately available for comment.

A sale would likely be one of the biggest deals the sector has yet seen. Remington has about 10,000 students and generates around $150 million in annual revenue, Barnett says. Analyst Jennifer Childe of Bear Stearns says outfits in the sector typically generate profit margins of about 20%, using earnings before interest, taxes, and depreciation as a benchmark (EBIDTA). Private equity firms have been paying at least 8 to 10 times annual EBITDA for such businesses. Since Remington generates an estimated $30 million in EBITDA, it should sell for $240 million to $300 million -- perhaps even more.

PLENTY OF POTENTIAL. Remington's move closely follows JLL Partners' $52 million acquisition of the Marco Group, which operates for-profit post-secondary schools. The deal, which closed on Nov. 4, will provide a foundation for further acquisitions, according to JLL Vice-President Frank Rodriguez. "We targeted the education space two years ago because there's an opportunity for real growth," he says.

JLL is just one of several private equity firms that like the sector. New Mountain Capital invested $135 million in Strayer Education (STRA) three years ago. The Riverside Co. has acquired ATI Enterprises. And Primus Venture Partners, which participated in the ATI deal, also has invested in Corinthian and DeVry.

The for-profit-school market has plenty of growth potential. Over the last 20 years, a rising number of people have pursued higher education. Plus, plenty of adults go back to school, and the increasing availability and acceptance of online programs will boost their numbers. "But only 25% of adults in the country have an associate's degree or higher, so there's still a huge market to tap," Childe says. The industry boasts strong recurring revenue and great cash flow because students pay for classes upfront and often stay enrolled for months or years at a time.

NOT CHEAP. For-profit schools offer a wide range of programs in such growing fields as health-care-worker training, criminal justice, automotive repair, information technology, accounting, business administration, and finance. They're often a viable alternative for someone who can't afford or doesn't need the kind of education a traditional college offers. Students can earn a certificate in as little as eight months, or stay for a BA or an advanced degree at some institutions.

These schools aren't the cheapest option, though. While they cost far less than a four-year university, they usually cost more than a community college. Tuition at one of the for-profits can run $20,000 a year -- about five times as much as at a community college. But for motivated students, the extra expense, which can sometimes be mitigated with loans and grants, is often worth it, Glakas says. Classes at community colleges are often crowded and difficult to get into, which can prolong the time it takes to get a degree.

In today's global market, jobs are created and destroyed at a faster pace than ever before. People need to be trained and retrained for a variety of careers, and for-profit schools can be a big help. These educational institutions have lacked the prestige of traditional schools, but Wall Street is giving them plenty of respect these days. Rosenbush is a senior writer in New York. He also moderates BusinessWeek Online's political blog, Party Lines


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