Two Reports Offer Bright Outlook for Education Industry

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Merrill Lynch is bullish on the for-profit education industry. And so is EduVentures LLC, a Boston consulting firm that has tracked the rise of the industry.

New reports from those companies released last month predict strong growth in revenues for companies in child care, K-12 education, higher education, and corporate training.

EduVentures estimates that for-profit education companies had revenues of $82 billion last year, a 25 percent increase over 1997. Revenues are projected to reach $99 billion this year and $123 billion in 2000.

SOURCE: EduVentures LLC.
*Figures are projected.

Merrill Lynch & Co. has a slightly more conservative outlook. It estimates the industry took in $70 billion last year and should reach $100 billion by 2001.

"The education industry represents, in our opinion, the final frontier in private participation in public programs," says the Merrill Lynch report, titled "The Book of Knowledge."

The venerable Wall Street investment firm says the trend toward privatization of traditional public schooling will pick up steam in the next decade.

"It is our prediction that 10 percent of the publicly funded K-12 school market will be privately managed 10 years from now, implying a market of over $30 billion in today's dollars," the Merrill Lynch report says.

Education is following other industries that underwent waves of reform brought about by competition, including utilities, telecommunications, transportation, and health care, the report says.

Since 1994, education and training companies have raised more than $3.4 billion from public stock offerings. Merrill Lynch's Education and Training Index, made up of about 50 industry stocks, has increased 134 percent in value since 1994, the report says.

Three Sectors

EduVentures says in its report, "The Education Industry: Markets and Opportunities," that the growth of for-profit education is being driven by such factors as public engagement with the details of education reform, entrepreneurship in the field, and the increased availability of venture capital for education firms.

"The true agents of change for education reform in the 21st century are going to be the innovative for-profit enterprises built by education entrepreneurs," Michael R. Sandler, the chief executive officer of EduVentures, asserts in the report.

The consulting firm divides the for-profit education industry into three sectors: products, services, and schools.

In the products sector, revenues totaled $24 billion last year, according to EduVentures, an increase of 17 percent over 1997. That sector includes educational publishers such as Harcourt General Inc. and Scholastic Corp.; electronic-media companies such as The Learning Co.; and school-supplies businesses such as School Specialty.

The services sector had revenues of $30 billion last year, a 30 percent increase over the previous year. The sector includes corporate-training firms, as well as providers of at-risk-youth services such as Children's Comprehensive Services Inc.; and supplementary education companies such as Sylvan Learning Systems Inc. and Berlitz International.

The schools sector posted revenues of $28 billion in 1998, up 33 percent from 1997. It includes companies that run child-care centers, charter schools and other public K-12 schools, and postsecondary academic and vocational schools.

Among the companies included in the sector are Bright Horizons Family Solutions Inc., a child-care provider; Nobel Learning Communities Inc., which owns a chain of private child-care centers and K-12 schools; the Edison Project, which manages 51 public schools across the country; and postsecondary companies such as Apollo Group Inc.

EduVentures says the growing number of charter schools is helping drive growth in the schools sector. Roughly 10 percent of the estimated 1,200 charter schools across the country are managed by for-profit companies, the report says.

But the report predicts a "slow growth curve to profitability" for school management companies.

Merrill Lynch, meanwhile, divides up the for-profit industry differently. It says that early-education and child-care companies had revenues of $11.5 billion in 1998. K-12 education companies had revenues of $18.5 billion that year. Postsecondary education firms had $8 billion; corporate-training companies had $19 billion; and companies selling consumer educational products and services, such as tutoring and test preparation, had revenues of $13 billion, according to the firm's report.

Each sector is expected to grow by 10 percent to 15 percent by 2001.

Vol. 18, Issue 36, Page 5

Published in Print: May 19, 1999, as Two Reports Offer Bright Outlook for Education Industry
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