General Electric Co.'s (NYSE:GE) former CEO Jack Welch is such a proponent of education that he's decided to take a 12% stake in Chancellor University LLC, according to The Wall Street Journal. The investment is a modest $2 million for the stake in Chancellor, which is being created from formerly bankrupt Myers University in Cleveland.
Welch's investment has the potential to bloom into a dealmaking bonanza for education-related companies, who have performed moderately well in this recession as they become the new favorite flavor for money managers and investors. Two education-related companies have already gone public in 2009, and both are still above their offering price.
Language instructional company Rosetta Stone Inc. (NYSE:RST) went public in April, rising 40% in its first day of trading, raising $112.5 million. Since then, Rosetta has cooled off, but it is still up a respectable 3.5% since going public. Meanwhile, online college Bridgepoint Education Inc. (NYSE: BPI) is up nearly 45% since going public in April, when it raised $141.75 million.
So, why all the interest in education-related companies now? Simply put, they are countercylical in nature. During times of economic uncertainly, people tend to flock to schools for more training or retraining to advance their careers or start new ones.
"Education companies continue to perform quite well from an operational standpoint," Erik Carneal of Piper Jaffray & Co. told The Deal Pipeline last month. "I believe that for the balance of 2009, education dealflow will be higher than the overall market. Education is one of the few sectors that appears to be able to attract new capital to facilitate buyouts."
That's a lesson plan that Welch is likely anticipating. - Gerald Magpily
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