Investment Conference Explores the Bottom Line in Education

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Workplace child care is one of the most promising and fastest-growing sectors of the for-profit education industry, participants at an investment conference here agreed.

Over the past five years, the total revenue of centers that offer child care as an employee benefit has grown at a rate of about 25 percent a year, from $700 million in 1992 to $2 billion today, said Julie H. Horowitz, an analyst with the New York City investment firm ING Baring Furman Selz LLC.

"We look for much future growthin the workplace child-care market--and in supplementary business areas--and we expect the established, leading companies to continue on their pathsto increased profitability," Ms.Horowitz said.

She was among the speakers here Sept. 24-25 at Fulcrum Information Services Inc.'s third annual Education Industry Investment and Finance Institute.

The recent merger of Bright Horizons Inc. and CorporateFamily Solutions Inc. created Bright Horizons Family Solutions Inc., a leader in the workplace child-care sector with 265 centers capable of serving 32,000 children.

Other leaders in the sector include Children's Discovery Centers Inc., KinderCare Learning Centers Inc., and La Petite Academy.

Ms. Horowitz noted, however, that employer-sponsored care accounts for just 7 percent of the overall child-care market, or about $2 billion out of $30 billion spent annually.

Since last year, she said, a wave of mergers and acquisitions has swept through the child-care business: "There has been unprecedented consolidation."

In the past year, industry leader KinderCare Learning Centers was acquired by an affiliate of the investment firm Kohlberg, Kravis and Roberts. Children's Discovery Centers Inc. was acquired in April by a subsidiary of Knowledge Universe LLC, the education company formed by former Wall Street financier Michael R. Milken, his brother Lowell Milken, and Lawrence J. Ellison, the chairman of Oracle Corp.

Ms. Horowitz said the long-term outlook for workplace child care is bright because companies view the centers as important benefits and the annual costs are relatively low.

Companies such as Bright Horizons Family Solutions will also expand a variety of other services, such as before- and after-school programs and services for school-age children.

Another sector of the education industry that may be ripe for consolidation and growth is private, for-profit special education schools, according to a report released here.

The report by Kids 1 Inc., an East Brunswick, N.J.-based company, estimates the annual revenue of the private-sector special education market at $2.3 billion. That is a small portion of the total $32.6 billion spent by government and parents on special education.

Anywhere from 3,000 to 3,500 private special education schools are operating in the United States, the report says. Of some 5.6 million children ages 3-21 who received special education services in 1995-96 under the federal Individuals with Disabilities Education Act, fewer than 3 percent, or about 130,000, were in private schools.

"The nonpublic [special education] school market is highly fragmented, characterized by small, local, nonprofit providers," says the report by Janet R. Beales, a vice president of Kids 1.

"Enrollment in nonpublic schools has leveled off in the past decade, helping to create the right conditions for consolidation in this mature industry," it adds. The biggest competition for any single private special education school is the public schools, the report says.

"Market-oriented reforms, such as charter schools, school choice, and contracting out, could pave the way for more private-sector involvement," the report says. It concludes that companies involved in educating at-risk and adjudicated youths may be in a good position to cross over to special education.

EduVentures LLC, a Boston-based consulting company focused on the education industry, maintains a stock index of 30 publicly traded companies involved in schools, educational services, and products. The companies on the EduVentures index have a market value of $14 billion. While the index increased by 38 percent in 1997, it was down 4.04 percent through Aug. 31 of this year, according to a report released here.

One company on the index may soon be off the list because it is being acquired by a larger concern. Youth Services International Inc., an Owings Mills, Md.-based company that provides education services to troubled youths,is being acquired by Correctional Services Corp., a developer and manager of privately run adult and juvenile correctional facilities based in Sarasota, Fla.


Vol. 18, Issue 6, Page 10

Published in Print: October 7, 1998, as Investment Conference Explores the Bottom Line in Education
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