Enrollments Plunge at Many For-Profit Colleges

Discussion in 'General Distance Learning Discussions' started by imalcolm, Aug 17, 2011.

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  1. SteveFoerster

    SteveFoerster Resident Gadfly Staff Member

    Ah, Ted, truly great minds think alike. :friday:
     
  2. CalDog

    CalDog New Member

    I'm sure that accreditation is an additional concern, but in practice, accreditation agencies don't seem to object to academic mergers, as long as both institutions have equivalent accreditation in good standing.

    Both of these points may be completely valid, but bad corporate mergers happen regularly despite such issues (cf. Daimler/Chrysler, AOL/TimeWarner). The big merger news over the past week was Google's buyout of Motorola Mobility, and there has been much questioning of the cultural compatibility there.

    In any case, this was just a hypothetical example, involving two schools that happened to be discussed in this thread. There could be other potential mergers that might seem like better fits.
     
    Last edited by a moderator: Aug 18, 2011
  3. CalDog

    CalDog New Member

    Below is an August 3 quote from Morningstar (a well-known independent investment research company), in response to APOL's recent acquisition of Carnegie Learning and related technology:

    If "the larger and cash-rich for-profit education providers" do in fact follow this predicted strategy, then the obvious implication is that smaller and less-rich for-profit education providers could become takeover targets (or "acquisitions").

    Morningstar's headline is "Acquisition Won't Move the Needle for Apollo Group, but Highlights Next Chapter for Education Sector". They expect the next chapter to be consolidation.
     
    Last edited by a moderator: Aug 18, 2011
  4. Anthony Pina

    Anthony Pina Active Member

    Another option is to follow the example of Keiser University and convert from for-profit to non-profit.
     
  5. CalDog

    CalDog New Member

    This is not a realistic option for the publicly traded for-profits. Even the smaller players in this category (like APEI) have hundreds of millions of dollars of stock in the hands of shareholders; for bigger companies (like APOL), it's billions of dollars. In theory, a non-profit entity could take control of the company by buying back all of the stock, but in practice, non-profit organizations do not have financial resources for these sorts of acquisitions.

    Keiser University was for-profit, but it was privately held by Arthur Keiser (not publicly traded). He decided to set up a non-profit entity, then transfer ownership of the school to that entity. This is legally feasible, but I doubt that many other for-profit schools will follow this approach. When for-profit businesses change ownership, they are normally sold to other for-profit businesses.
     
    Last edited by a moderator: Aug 18, 2011
  6. CalDog

    CalDog New Member

    More news on the consolidation of for-profit education companies:

    In the current economic environment, the big fish are prepared to spend hundreds of millions of dollars to snap up the little fish. This may be something to be aware of, if you are a student with one of the smaller fish.

    DeVry's current market cap is around $2.7 billion, so a $235 million dollar school is something they can afford. It's likely that other large schools are looking at similar deals.
     
    Last edited by a moderator: Aug 19, 2011
  7. Anthony Pina

    Anthony Pina Active Member

    Acquisitions like this are commonplace in the business world. For example, the learning management system used at my university (ANGEL) was acquired by Blackboard in 2009 (WebCT had been acquired by Blackboard three years earlier).

    A similar type of situation is also not unheard of in non-profit higher education. Compton College, upon losing its accreditation, was taken over by El Camino College and Lambuth University was taken over by the University of Memphis.

    As CalDog advises, caveat emptor is always a good model to follow.
     
  8. dlcurious

    dlcurious Member

    I can verify this isn't (or wasn't) the case, at least for graduate level studies at UIS. My tuition was raised twice in my 2 years of attending the school. Granted, it only went up a total of $16 a credit hour, plus some changes in fees, but still...
     
  9. StefanM

    StefanM New Member


    I know in Lambuth's case it was not so much an acquisition of the college as it was an acquisition of the facilities.
     
  10. CalDog

    CalDog New Member

    The Compton College example isn't really a good one either. It's true that Compton College did lose its accreditation, and that it then became the "Compton Center of El Camino College". But it's understood by all parties that this arrangement is not expected to be permanent:

     
  11. CalDog

    CalDog New Member

    There are certainly cases where non-profit schools have merged together, as equal or unequal partners, for various reasons. But with non-profits, this kind of change generally happens in a very open and cooperative manner, with the understanding and consent of the school community (students, faculty, administration, alumni, etc).

    It could be different with for-profits. Merger and acquisition deals could happen behind closed doors, without the knowledge or approval of the school communities involved. In theory, there could even be hostile takeovers of schools that were strongly opposed to such change.

    We can only wait and see how it will play out. But it does seem reasonable to expect consolidation of some kind in the for-profit education sector in the coming years. The period of rapid growth is (most likely) over; the for-profits will look to improve market share and operating efficiency through mergers and acquisitions instead.
     
    Last edited by a moderator: Aug 20, 2011
  12. Anthony Pina

    Anthony Pina Active Member

    You and StefanM are correct. These really are not the best examples. DePaul University's purchase of Barat College (which they eventually sold again) and Union's purchase of Vermont College are probably better examples.
     
  13. Anthony Pina

    Anthony Pina Active Member

    It may be that the rapid pace of growth within the largest publicly-traded for-profit colleges and universities may be slowed in the future, but this current situation may also turn out to be a temporary one. The future of many private sector industries (including private sector higher education) will depend greatly on who rules to roost in Washington. When those in the administration and the legislature target any particular industry as "the enemy," that industry suffers. Private sector education is certainly not the first industry to have a bulls eye painted on it.
     
  14. CalDog

    CalDog New Member

    Update: Capella Education just announced a new revolving credit agreement with Bank of America:

    So Capella "only" had $10 million in "borrowing capacity", and now has a lot more -- like $100 to $150 million.

    What do they need it for ? Well, maybe Capella is planning to buy something expensive. At least that's how some Wall Street analysts interpret it:

     
    Last edited by a moderator: Oct 11, 2011
  15. CalDog

    CalDog New Member

    Another point of interest: the Capella announcement quoted their CFO as follows:

    So Capella has $173 million in cash on hand, with no debt -- and yet for some reason they still need additional credit, to the tune of $100 to $150 million.

    Interesting.
     
    Last edited by a moderator: Oct 11, 2011
  16. ryoder

    ryoder New Member

    The nice thing about these schools being private, for profit institutions is that they can scale back operations by not hiring as many adjuncts, laying off faculty, cutting advertising or other operational costs or whatever it takes to stay profitable.
    The public schools have fewer options and laying off public school teachers is much less politically correct than laying off private school teachers.
    The invisible hand of the market will sort this out.
     
  17. Cyber

    Cyber New Member

    Since the DL modality operated by for-profits utilize on-demand adjuncts, laying faculty off may not even be needed, considering that adjuncts only get work if students enroll (no or low enrollment means no work and no faculty overhead). So yes, for-profits; especially, online-only schools, have the flexibility of operating or "scaling" in a manner that guarantees profit, besides changing program requirements with the aim of squeezing more money out of students or raising tuition abruptly, as much as they want.
     
  18. Cyber

    Cyber New Member

    It's time to innovate!

    There's talk about why many should pursue trade careers by attending trade schools. There is also the understanding by many that online-only schools stand less chance of surviving in the long-term as more state schools or private B & M schools start offering DL degrees. Based on the state of enrollment and the points highlighted above, Capella is realizing that they have to innovate, fast, or risk ceasing to exist.

    That said, Capella plans for the huge credit line may include expansionary activities for the UK distance learning company that they recently purchased, for example. They may also be setting their eyes at acquiring some B & M schools in the U.S. or other countries, just like Laureate Education, Inc., operators of Walden University, does. In addition to Walden, Laureate owns a total of 65 schools (a greater percentage are B & M schools and many trade schools) in different continents including Europe, South America, Asia Pacific, and the Middle East.

    Capella University or its parent company may be attempting to mimic Laureate's strategy of acquiring private B & M schools "all over the place," which seems like a very profitable strategy for Laureate. Capella teaches students how to innovate. Let's see how skilled they are at what they teach. Overall, if I were a student at Capella, I would be happy to hear this news, regardless of not knowing what they intend to do with the credit line.
     
    Last edited by a moderator: Oct 12, 2011
  19. CalDog

    CalDog New Member

    That's certainly possible. The size of Capella's credit line suggests that they are either looking at a lot of small targets, or at a single target that is unusually big. For example, they acquired RDI in the UK for "only" $14.9 million. They now seem to be preparing for something that would require $100-200 million (or more), as opposed to $10-20 million. In other words, the scale seems to be much larger than that of the RDI acquisition.
     
    Last edited by a moderator: Oct 12, 2011
  20. Kizmet

    Kizmet Moderator

    You talk like a spokesman for Capella. Are you?
     

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