Federal

Educate Inc. Puts Division Up for Sale

By Rhea R. Borja — December 06, 2005 2 min read
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The tutoring company Educate Inc. wants to sell its main supplemental-services division after it posted lackluster sales in the third quarter.

The Baltimore-based company announced its aim in late October to sell Education Station. That subsidiary is one of the big players in the highly competitive field of providers offering publicly financed after-school tutoring for students from public schools that fail to make targets for adequate yearly progress under the federal No Child Left Behind Act. (” Supplemental Help Can Be Hard to Find for Rural Students,” this issue.)

Education Station operates in more than 70 school districts—most of them in urban areas—in 37 states. It served about 30,000 students last year, and has about 350 full-time employees. Educate Inc. hopes to sell the subsidiary in the next six months to a year.

The time and money needed to expand Education Station, is beyond what the parent company wants to invest, especially at a time when Educate Inc. is expanding its tutoring services for the consumer market, said Jeffrey Cohen, the president of Catapult Learning, Educate Inc.’s K-12 division, which oversees the NCLB-services division.

“It’s a labor-intensive business,” he said of Education Station. “It requires a lot of senior-management focus, financial resources, and hundreds if not thousands of employees.”

Education Station isn’t growing as robustly as other providers of NCLB tutoring services, said Trace Urdan, a senior analyst at Robert W. Baird & Co., an investment bank based in Milwaukee. That lagging performance hurts in a field in which all but the strongest players could soon be knocked out, he said.

“It’s a dogfight,” Mr. Urdan said of the competition in the supplemental-services market.

Some of the companies likely to bid on Education Station include New York City-based Platform Learning, whose supplemental-services division has grown rapidly, and Kaplan Inc., also based in New York City, Mr. Urdan said. He would not speculate on the dollar value of Education Station to a buyer.

While Education Station’s year-to-date revenues have risen 28 percent—to $28 million—compared with the same period in 2004, the division also posted a 4 percent revenue decrease in the third quarter, compared with the same period last year. Education Station’s year-to-date revenues constitute 10 percent of the overall company’s revenues.

“The truth is that it’s too competitive to make a lot of money in this marketplace,” Mr. Urdan said. “On the other hand, you’ve got a market right now that’s white-hot. If there is any time to sell, they’re in that window now.”

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