Continuing the trend of private equity deals taking out public companies, Providence Equity Partners and Goldman Sachs announced the purchase of Education Management (EDMC) for $3.4 billion.
EDMC is a for-profit university, taking advantage of the rising costs of traditional universities. Two weeks ago, I tried to disguise my shock when my son Ross showed me the annual sticker price for his college of choice: $46,800. (Paying for college for children is like paying for an engagement ring - there are some things you just do, regardless of the cost.)
EDMC is the third largest for-profit, behind Apollo Group (APOL) and Career Education (CECO). The latest buyout seems similar to most of the recent deals I've studied: a 16% premium over the latest stock price.
As a footnote for the more financially minded, EDMC had 2005 sales of $1 billion with a 10% net of $100 million. In contrast APOL had 2005 sales of $2.2 billion with 20% net of $440 million. The purchase price of EDMC, offered by the new owners, implies a comparable (ave. of sales and net profit multiples) purchase price for APOL of at least $10.6 billion or about $60 per share.
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An interesting journey. Goldman Sachs and partners paid $3.4 bln in 2006 to take EDMC private. Later in Sept 2009, they took it public at $1 bln valuation (at $20/share) while retaining 40% of the stock. Presumably they sold these shares on a rising market. In 2018, EDMC declared bankruptcy. Lesson here: if it doesn't add value AND is funded by government dollars, avoid.
ReplyDeleteThere are two more takeaways from this situation: 1) public good companies are those primarily funded by government dollars or regulatory benefits; such companies have additional obligations 2) when for-profits compete with non-profits a difficult situation emerges and one that is particularly dangerous for the for-profits.
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