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Published in Print: May 20, 1998, as One School at a Time, Pa. Company Is Dominating the For-Profit Market

One School at a Time, Pa. Company Is Dominating the For-Profit Market

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The business plan is simple: Build a network of private preschools and elementary schools. Keep tuition below what more elite private schools charge, thus staying affordable for middle-class families. But offer solid academics, loads of after-school activities, and potential models for the public schools.

That may sound vaguely like the original proposal for the Edison Project. But media entrepreneur Christopher Whittle and his team years ago dropped their idea of building a chain of private schools in favor of operating public schools under contracts or charters from districts and states.

No, this plan belongs to Nobel Education Dynamics Inc., a company based in this Philadelphia suburb that has quietly become the largest for-profit operator of private elementary schools in the country.

Nobel owns 132 schools--100 preschools and 32 elementary and middle schools, many with names that have an old-money ring, like Merryhill Country Day School and Chesterbrook Academy. They are sprouting in outlying, fast-growing suburban areas such as Loudoun County, Va., outside Washington; West Goshen, Pa., near Philadelphia; and Naperville, Ill., outside Chicago.

"What we're trying to build is a seamless education from two years of age to about 12 years," A.J. "Jack" Clegg, Nobel's chairman and chief executive officer, said during a recent interview at the company's headquarters.

Profit and Loss

While there has been a conspicuous absence of actual profit in the nascent industry of private, for-profit providers of precollegiate education, Nobel has shown black ink on its ledger--most of the time.

Wall Street, which is paying increasing attention to the for-profit education business, has taken notice.

"While some patience may be required, we believe that Nobel provides an excellent vehicle for investors to participate in the growth of for-profit firms in both the child-care and school markets," said a January report on the company from Furman Selz LLC, a New York City investment firm.

Leslie A. Nelkin, an analyst who follows the publicly traded company for Furman Selz, said last week that Nobel has a strong long-term growth strategy.

"I think their model of integrating child care and elementary education is a wise one," Mr. Nelkin said.

Some major investors apparently agree. In late January, Knowledge Universe LLC bought a 16 percent stake in Nobel. Knowledge Universe is a Burlingame, Calif.-based investment firm principally owned by former Wall Street junk-bond financier Michael R. Milken and Lawrence J. Ellison, the chairman of Oracle Corp.

Mr. Nelkin said Knowledge Universe's investment in Nobel "is a recognition of the value of the firm."

Knowledge Universe has told the federal Securities and Exchange Commission that it may be interested in eventually acquiring a majority stake in Nobel. The company's executives could not be reached for comment.

Mr. Clegg said Nobel has had discussions with Knowledge Universe.

"I don't fear Knowledge Universe as long as they agree with our mission," he said.

For now, Nobel is the only major corporate player in running private schools for profit. Most other for-profit schools are one- or two-school operations owned by small proprietors.

But some other companies are beginning to recognize that there is a market. Mr. Clegg said he is keeping an eye on ARAMARK Educational Resources Inc., a Golden, Colo.-based child-care chain that is expanding into private elementary schools.

National Standards

For many educators who are accustomed to trying to raise test scores instead of earnings-per-share, the for-profit approach to schools raises unsettling questions.

"One assumes that for [for-profit schools], profit is the bottom line. Therefore, some educational decisions could be driven by that bottom line," said Selby Holmberg, a vice president of the Washington-based National Association of Independent Schools, whose membership includes many of the country's most selective private schools.

Ms. Holmberg stressed that she was not familiar with Nobel's operations and that her concerns were general ones about for-profit schools. The association has at times considered allowing for-profit schools to join as members, but it ultimately reaffirmed its requirement of nonprofit status.

Nobel seems well aware of such concerns and has hired a national advisory board for educational matters. The company also has a chief education officer, Barbara Presseisen, who reports directly to Mr. Clegg.

"We have a consistent curriculum plan with national standards and benchmarks," said Ms. Presseisen, who spent 23 years with Philadelphia-based Research for Better Schools, a former education research laboratory. "We dovetail with state requirements, or we tend to be ahead of state requirements."

"Our preschool is curriculum-based, too," she added.

In fact, Nobel has its roots in the child-care business. The company was founded in 1984 as Rocking Horse Child Care Centers of America Inc., a national chain that had foundered by the early 1990s. Mr. Clegg, 57, a New Jersey-born engineer who had earned a reputation as a corporate-turnaround artist, was brought in by the firm's investors in 1992.

He sold unprofitable properties and changed the corporate name to one that evoked the Nobel prizes. (The company is considering altering its name to Nobel Learning Communities Inc.)

Mr. Clegg was impressed by the performance of the Merryhill Schools, a private California chain of schools that Nobel had acquired. The schools went beyond prekindergarten into the elementary grades, which Mr. Clegg thought was the right direction for the whole company.

From there, Nobel began snapping up small, mom-and-pop proprietary preschools and elementary schools, while also drawing up plans to build some of its own. Its strategy calls for clustering several preschools around a Nobel elementary school, so parents who are pleased with the program their young children receive can stay with Nobel through 8th grade.

The national average elementary tuition in Nobel schools is about $5,500, more than the typical tuition in Roman Catholic elementary schools, but more affordable than the median 3rd grade tuition for member schools in the NAIS, which is $8,885 this year.

"We're trying to bring the private school alternative down to middle-income families," Mr. Clegg said. "We'll take anybody who can afford it."

Nobel schools do not administer admissions tests. Teachers are all state-certified, but they don't have tenure, and they are paid well below what most public school teachers get. The average starting salary is about $25,000.

Nobel further holds costs down by keeping administrative staffs to a minimum. A cluster of local schools may share a maintenance worker or a music teacher.

Ms. Presseisen said Nobel's curriculum emphasizes a challenging dose of core subjects, along with music, art, physical education, and computers. Spanish instruction begins in kindergarten. Reading instruction stresses phonics, but includes whole-language methods, too.

"Parents come to us because they want a good, solid education for their children without a lot of twists and turns," she said.

When the company acquires a school, it introduces its curriculum and other systems gradually, but it does like to have a consistent program, Ms. Presseisen said.

New Jersey Campus

Some 60 miles away from Nobel's headquarters, at the Chesterbrook Academy in Manalapan, N.J., students wearing forest-green uniforms were playing dodgeball and working on science experiments one day earlier this month.

Two years ago, Nobel bought what was one of two campuses of the private Ranney School. The central New Jersey location is set amid horse farms and rural roads, but some residents commute daily to Philadelphia or New York City.

"They spruced up the classrooms, air-conditioned the building, and added cubbyholes for the students," said Gerri Kromann, who stayed on as principal to the satisfaction of the school's parents.

Enrollment has nearly quadrupled, from 30, when Nobel bought it, to 108, and ground will soon be broken for a new building that will have a big library/-media center.

An "advanced" kindergarten class learns the basics of charting bar graphs, while students in the computer lab use CD-ROM encyclopedias and graphics software to produce reports.

Gail Murray, the mother of a 2nd grade boy at Chesterbrook, said she and her husband settled in Monmouth County in part because of the strong reputation of the public schools. But after enrolling their son in the Ranney School's preschool program, they decided to keep him there once Nobel took over.

"I saw that they started making improvements immediately," she said. She added that she "could care less" about the corporate, for-profit ownership of the school as long as it measures up academically.

Principal Kromann admits that she had some qualms about her school being run by a national corporation.

"My picture was that I would be calling a central warehouse for books," she said. "But that's not the way it's been."

Mr. Clegg said that Nobel is currently using 26 different names on its schools, and that it prefers to keep the existing name when it buys a school. (That wasn't possible at the Manalapan school because there was another branch of the Ranney School.)

Most new schools in the West, though, are called Merryhill, and most new schools in the East and Midwest bear the Chesterbrook name.

But Mr. Clegg stressed that Nobel is not out to promote a single national brand name, which he believes smacks too much of franchising or fast food.

"This is not like a weight-loss center," Mr. Clegg said. "These are children."

Growth Plans

Nobel hit some bumps in 1997, losing $844,000 on revenues of $81 million.

"Last year we stumbled," Mr. Clegg said.

The company said it would have been in the black, with $1.6 million in net income, except for some one-time restructuring charges it decided to take in large part due to the poor performance of nine schools it owns in the Indianapolis area. Nobel is now planning to sell some or all of those schools.

Another problem area last year was California, where some teachers at its Merryhill schools bolted for public school jobs when districts went on a hiring spree as part of a state initiative to reduce teacher-pupil ratios. Some parents and students followed the teachers out of Nobel's schools back to the public schools, which affected revenues, the company says.

Mr. Clegg said Nobel is on target to have revenues of $100 million this year. In its first fiscal quarter, which ended March 31, Nobel had a net income of $618,000 on revenue of $24 million.

Some analysts have taken a cautious view of the company's stock.

"We went to a hold at the end of last year," said Brent Garcia, an analyst who follows Nobel for Salomon Smith Barney in New York City. "We've been very conservative."

Mr. Clegg outlined the company's short-term and long-term future.

This year, Nobel expects to grow to more than 140 total schools. It has a new cluster of schools set to open in the booming Las Vegas area, and it is looking for future growth in its 13 current states of operation as well as in Arizona, Colorado, Georgia, Idaho, New Mexico, Texas, and Wisconsin, Mr. Clegg said.

Nobel plans to step cautiously into the charter school arena. It is pursuing a single charter to run a school in Pennsylvania, Mr. Clegg said.

He adds that Nobel may not be content to operate in upper-middle-class suburban areas. Several years ago, he met with executives of the New York City-based Edison Project, suggesting that he had school buildings that might fit into that company's plans.

"But nothing came of it," he said. "I think what they are doing is admirable. But I just don't get a feeling they will ever make a profit."

A couple of years ago, Mr. Clegg said, he wrote to Mayor Edward Rendell of Philadelphia, suggesting he could get corporate backing for a experimental, tuition-free Nobel school in the inner city. He said he never received a response.

Mr. Clegg points out that a voucher system could make Nobel schools viable in low- to middle-income city neighborhoods. But that prospect seems far off at best.

The future, Mr. Clegg and education-industry analysts say, likely will involve more for-profit private schools at all grade levels.

For example, ARAMARK Educational Resources Inc., which owns the Children's World child-care chain, has just begun to build a private school division using the name Meritor Academy.

And CorporateFamily Solutions Inc., a Nashville, Tenn.-based child-care company that is merging with Bright Horizons Inc., has discussed expanding its corporate-site day-care centers to include elementary grades.

"We think there is a tremendous potential for the private sector to expand its presence in the elementary school market," Mr. Garcia of Salomon Smith Barney said. "The elementary market certainly has room left for private competitors."

Vol. 17, Issue 36, Pages 1,14-15

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