File spoon-archives/avant-garde.archive/avant-garde_1996/96-11-03.013, message 105

Date: Tue, 22 Oct 1996 11:27:29 -0400
Subject: Making Dolls of Scholars

   Here's a follow-up to the Economist ad for Great Minds
   autodidactic piggy-backed pygmy-mindism.

   In the US the locus of haute-tech for-profit numb-skill
   education is the Bos-Wash region -- Boston to Washington
   D.C. -- long-nurtured by high-tech defense funding and now
   privatizing those "non-profit" perks and pensions
   feverishly with Wall Street's sleazy bribes -- and swapping of
   juice-league tips on how to drain the sap-wits with info-tech.

   Ivy League and Old South universities are especially
   devoted to exploiting ancient networks of auto-haute Best
   and Brightest, emulating the European Empire's neocolonial
   gov-biz teat-suckers: "elites." Working the Net of Nets.

   For bleeding edge sap on read and slobber IATH


   The Washington Post, October 21, 1996, Business, p. 14.

   Wall Street Looks to Make Dollars Off Scholars

   By Jerry Knight

      The for-profit education industry's growth is being
      driven by demographics, technology and politics. The
      population of potential students, from kindergarten
      through college, for the for-profit education industry
      is the largest it has been since the 1950s. At the same
      time, the increasing complexity of today's jobs is
      driving demand for specialized technical education. The
      profitmaking schools are very much a part of the
      high-tech boom.

   Like an old cowhand, Warren Buffett herded the bulls of
   Wall Street into a green pasture last week in announcing
   plans to buy FlightSafety International Inc., the nation's
   largest private education and training company.

   Buffett's investment company, Berkshire Hathaway Inc., will
   pay $1.5 billion for FlightSafety, which, outside of a few
   airlines and a couple of air forces, trains more pilots
   than any other company.

   Following the formula that has made him one of the most
   successful investors of his generation, Buffett made his
   bet not only on a company with an exceptional future but
   also on an emerging industry: pedagogy for profit.

   With Buffett's anointment, FlightSafety becomes the
   best-known player in the nation's for-profit education
   industry, which includes an estimated 5,300 computer
   schools, technical training institutes and business

   Even before Buffett's move into the business, Wall Street
   was discovering what Montgomery Securities Analyst Michael
   T. Moe recently proclaimed to be "the dawn of the Age of

   San Francisco-based Montgomery and Baltimore's Legg Mason
   Wood Walker Inc. are among several investment firms that in
   the past year have added education to the list of
   industries followed by their research departments and that
   are recommending investments in the field, which includes
   about a dozen public companies.

   The Washington area is one of the most important incubators
   for this emerging industry. It is home to three companies
   that have raised funds on Wall Street and a fourth that
   hopes to have an initial public offering of stock this
   fall. The companies include:

   + Sylvan Learning Systems of Columbia (SLVN on the Nasdaq
   Stock Market) which went public in 1993 and raised another
   $62 million in a secondary offering last December to fuel
   its expansion. Sylvan specializes in tutoring to improve
   student performance, but also was recently hired to manage
   some troubled D.C. public schools and won a big contract to
   handle testing of stockbrokers for the National Association
   of Securities Dealers.

   + Computer Learning Centers Inc. of Fairfax (CLCX on
   Nasdaq), whose stock has risen from $8 a share to more than
   $25 since it went public in May 1995 sold another 1.1
   million shares at $25.75 last week, raising more cash for
   further expansion. By year's end it will have 14 centers
   across the country offering computer training to full-time
   students and is building a separate operation that provides
   specialized courses of two to six weeks, geared to working

   + Strayer Education Inc. of Washington (STRA on Nasdaq)
   raised $30 million through an initial public offering in
   July and is using some of that cash to build a campus in
   Prince George's County, augmenting its eight facilities in
   the District and Virginia. Most of Strayer's 8,000 students
   are working adults who are updating their job skills, many
   of them taking courses at their employers' expense. 

   + UOL Publishing Inc. of Falls Church hopes to enroll
   shareholders this fall with a $25 million offering of 1.5
   million shares at $16, managed by Friedman, Billings,
   Ramsey & Co. of Arlington. UOL, which stands for
   "university on-line," plans to offer a catalogue of
   technical training via the Internet.

   The for-profit education industry's growth is being driven
   by demographics, technology and politics, Kara M. Cheseby
   an analyst with Legg Mason, pointed out in a recent
   research report.

   The population of potential students -- from kindergarten
   through college -- for this industry is the largest it has
   been since the 1950s, Cheseby pointed out. At the same
   time, the increasing complexity of today's jobs is driving
   demand for specialized technical education. She added, "You
   have a public education system that is largely perceived to
   be bankrupt in the quality of its results and unaccountable
   to its customers."

   This industry is split into two types of companies. There
   are specialized training firms like Sylvan, Computer
   Learning Centers and FlightSafety International. And there
   are degree-granting institutions including Strayer and
   three rivals that are building national chains: Apollo
   Group Inc. of Phoenix (APOL on Nasdaq), DeVry Inc. of
   Chicago (DV on the NYSE) and ITT Educational Services Inc.
   of Indianapolis (ESI on the NYSE).

   These companies are Wall Street's favorites, and though
   some analysts consider them to be overpriced, their stocks
   are selling for 30 to 50 times their expected earnings this

   That's the kind of earnings-per-share multiple usually paid
   these days only for technology companies, but the
   profitmaking schools are very much a part of the high-tech
   boom, said Strayer President Ronald K. Bailey. More than
   half of Strayer's students are pursuing degrees in computer
   information systems, and Strayer offers on-thejob courses
   at such area technology sites as Computer Sciences Corp.
   and the Naval Surface Weapons Laboratory.

   Like many entrepreneurs, Bailey got financing to build his
   business by mortgaging his home. He used the proceeds to
   buy the school from its previous owners in 1989. Paying the
   mortgage now should not be a problem for Bailey, who took
   nearly $20 million in cash out of this summer's initial
   public offering, which was managed by Legg Mason.

   Strayer stock came out at $10 a share on July 25 and took
   off like a high-tech stock, hitting a new high of $19.25 a
   share on Friday. One reason for the rise, analyst Cheseby
   said, is that Strayer has the best operating profit margins
   in the business, at 32 percent last year.

   Though not growing as fast as DeVry, ITT or Apollo, Strayer
   plans to open a new campus near the Beltway in Prince
   George's County next April, after trying for more than a
   decade to win state regulators' approval to move into

   That delay reflects another reason investors like the
   profit-making, degreegranting institutions, Cheseby said.
   "There's a moat around them," formed by regulations that
   make it difficult to start a college from scratch,
   effectively keeping out competitors, she said.

   While investors are just discovering Strayer, they have
   long been infatuated with Computer Learning Centers. CLC
   stock has come back to earth from Sept. 24 when it closed
   at $32. It closed at $26.50 Friday, a price that still
   represents a substantial rise this year.

   CLC shareholders have seemingly shrugged off bad news,
   including the U.S. Department of Education's decision last
   month to cut off most federal student loan and grant
   programs to the company's Chicago center because of
   unacceptably high default rates on student loans.

   More than 25 percent of the Chicago students failed to
   repay their loans during 1991, 1992 and 1993. Computer
   Learning sued the government to try to overturn the
   decision last week and says it will be eligible to return
   to the program next spring because the loan default rate
   was sufficiently reduced in 1994.

   CLC stock dropped $3 a share when the government action was
   announced, but rebounded within a couple of days following
   a highly favorable research report by Piper Jaffray Inc. of
   Minneapolis one of the investment firms that handled its
   initial public offering.

   Federal aid now accounts for more than 70 percent of CLC's
   revenue, but the company is moving into the more lucrative
   business of offering specialized computer courses, paid for
   by employers and working adult students, through a new
   division, Advantec Institute.

   The third big local education service, Sylvan Learning
   Centers, is expccted to complete a major acquisition early
   next month that will move it into yet another new area --
   teaching English to residents of Europe and Latin America.
   Sylvan plans to acquire the Wall Street Institute, based in
   Barcelona, which has more than 180 teaching sites, most of
   them franchised.

   Sylvan stock has risen more than 50 percent so far this
   year to close at $44.75 Friday. Buoying Sylvan stock: a
   3-for-2 stock split scheduled to be effective Nov. 8 to
   shareholders as of Oct. 7.


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