Private equity firm Apollo Management LP is selling Baltimore online schooling company Connections Education LLC to U.K. publishing giant Pearson plc for $400 million, Pearson said Thursday, Sept. 14.
Apollo and Sterling Partners, the target's minority owner, will pocket nearly the entire amount because Connections Education has little debt, a person familiar with the company said.
The two PE firms evidently will turn a profit. In September 2004, according to a financial filing, they paid $12 million to buy the business from Educate Inc., a K-12 education services provider Apollo had purchased for $283 million the previous year.
It isn't known how much additional capital, if any, New York-based Apollo and Baltimore-based Sterling have put into Connections Education since then.
Apollo executives were unavailable for comment. Sterling did not return a message seeking comment.
Connections Education has enjoyed spectacular growth over the past seven years. It posted less than $6 million in revenue the year Apollo and Sterling bought it.
This year, revenues are likely to hit $190 million, Sterling said.
Through its Connections Academy business, the company provides online instruction to more than 40,000 students in grades K-12. It operates "virtual" accredited public school in 21 U.S. states.
"Virtual schooling is an attractive choice for a growing group of American parents, and in the next decade it will take off in other countries," Pearson chief executive Marjorie Scardino said in a statement.
London-based Pearson, a textbook publisher that also owns the Financial Times newspaper and Penguin books, said it expects the acquisition to boost per share earnings after one year.
Pearson's shares closed up 32 pence, or 3%, at 1,100 pence ($17.42) Thursday on the London Stock Exchange.
Morgan, Lewis & Bockius LLP's Robert Dickey, Danielle Davis and Ji Kim were the buyer's counsel. Pearson has no outside financial adviser.
Apollo and Connections Education were advised by Barclays Capital bankers Pat Ives, Neil Meyer, Adam Nordin and Jason Williams, and by Paul, Weiss, Rifkind, Wharton & Garrison LLP attorney John M. Scott.
Connections Education is one of several businesses that were once part of Sylvan Learning Systems, an organization that was the focus of various deals involving private equity shops.
In 2000, Apollo invested $80 million in Sylvan; three years later it traded its stake in Sylvan for a controlling stake in Sylvan's K-12 tutoring operations. That operation was rechristened Educate Inc. In 2006 Apollo sold Educate to Sterling, Citigroup Private Equity and other investors for $518 million.
In 2007, Kohlberg Kravis Roberts & Co. LP and Citigroup Private Equity bought what remained of Sylvan -- its Laureate Education Inc. post-secondary education operation -- for $3.8 billion.
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