There have also been initial public offerings of for-profit, or "proprietary," post-secondary educators such as Bridgepoint Education Inc. and Education Management Corp. Online education company Archipelago Learning Inc., which has filed for an IPO, focuses on kindergarten through 12th grade but has recently begun to retool its digital learning aids for the postsecondary market. Over the summer, Jack Welch lent his name and some of his funds to the hybrid online-on-campus M.B.A. program at Chancellor University.
Now comes the question of how many higher-ed companies the market will support. The industry is fragmented, and many competitors have overlapping disciplines and models. In addition to large institutions such as Apollo Group Inc., DeVry Inc. and ITT Educational Services Inc., several small and midsized privately held companies teach trades or offer more general degrees.
"The market is still very, very fragmented, and that is the rationale for additional consolidation," Stifel, Nicolaus & Co. analyst Jerry Herman says, adding that while organic growth remains strong, companies may not feel the pressure to sell.
Many, however, have been hoarding cash and desire to enter new geographical markets and offer new programs. That desire could drive acquisitions.
Jefferies & Co. banker Alex Lehmann compares for-profit secondary education with "the software sector 10 or 12 years ago, before Oracle and others began rolling it up."
Apollo Group is a candidate to consolidate the industry. It is the largest of the for-profit, post-secondary educators, and owns a number of institutions, the best known of which is the University of Phoenix. Apollo's flagship owns the naming rights to the University of Phoenix Stadium, home of the National Football League's Arizona Cardinals. The total enrollment of Apollo's schools, which exceeds 360,000, could fill the stadium several times over.
"I'm not sure if Apollo is inclined to do it," Lehmann says. "It has the access to capital, the brand name, a good trade model and is probably the right guy to do a rollup. Or maybe some of the smaller guys would combine."
While it has clout to buy up its U.S. peers, Apollo's most recent acquisitions have been overseas through a partnership with private equity firm Carlyle Group. In June, Apollo Global Inc. said it would buy U.K. legal and financial educational company BPP Holdings plc for about $540 million. The international venture also acquired Chilean arts and communications school Universidad de Artes, Ciencias y Comunicación for up to $50 million.
Apollo's prior deal was in online advertising, rather than education. In 2007, the company bought Internet advertising network Aptimus Inc. in a move that Apollo said would improve its ability to oversee its marketing.
Ariel Sokol of Wedbush Morgan Securities Inc. agrees that there will be additional acquisitions but does not expect the field to dwindle to a few large educators. "I don't think you're going to see leaders actively try to consolidate the domestic market," the analyst says. There are a number of mom and pops that can be rolled up, but for the large companies, expanding internationally may be more compelling.
"The domestic market is more cyclical," he says. "In the international market there is just such a large demand."
DeVry is another large career-education company that could acquire its rivals. Like Apollo, however, the Oakbrook Terrace, Ill., company's most recent acquisition was outside of the country. DeVry bought an 82.3% stake in Brazilian business, law and engineering educator Faculdades Nordeste SA, or Fanor, in April for $40.4 million. Last year, the company made a domestic buyout. DeVry paid $290 million for U.S. Education Corp., a Mission Viejo, Calif., company that offers certificate programs and associate degrees in nursing, ultrasound technology, dental hygiene and related fields.
DeVry's birth supports the idea that education and retraining are useful amid economic stress. The company began in 1930s Chicago. Bell and Howell Education Group purchased the school in 1966. The modern DeVry materialized in 1987, when Bell and Howell merged the school with Keller Graduate School of Management.
"We believe industry consolidation will likely continue, driven by the solid capital structures of the industry's largest operators and the overwhelming demand for education in this country and around the world," a DeVry spokesman says. "And while our main priority is meeting the needs of our students, we continue to look at opportunities that further broaden our program reach and help us to diversify."
DeVry says future acquisitions would have to improve the quality of its programs and diversify its programs or its geographic reach. As with the purchase of U.S. Education, it will target schools in "high-demand fields" such as healthcare, business and technology.
Some companies are even older than DeVry: Strayer Education Inc., Heald and Penn Foster were formed in the 19th century. But the rapid growth of online programs is new to the industry. The Sloan Consortium, a group of institutions trying to increase higher education's acceptance of online programs, reports that the number of students taking Internet courses at post-secondary, degree-granting schools more than doubled from 2002 to 2007.
The increase from 1.6 million to 3.9 million students taking at least one online course represents a 19.7% compound annual growth rate. The growth rate of total higher education enrollment was 1.6% per year.
Experiments in online education that began in the 1990s have become more productive. "In the last decade, there has been a major step forward in the ability of the provider to audit what is going on and audit the quality of the service," says Scott Steffey of education industry consulting firm Symposium Ventures LLC. Institutions can track how much time teachers spend online, in direct contact with students. "My own experience is that online broadens the market, as opposed to cannibalizing the market," he says.
Steffey is a former vice chancellor of the State University of New York, and chief operating officer at Strayer Education. Before entering the education sector in the mid-1990s, he was an executive at American Express Co. and Nynex Corp., now part of Verizon Communications Inc.
Steffey has worked with New Mountain Capital LLC and Lee Equity Partners LLC, and advised TA Associates on its purchase of Vatterott in September.
Vatterott has about 8,000 students in skilled trades, such as air-conditioning repair, building maintenance, paralegal studies, court reporting, cosmetology and diesel mechanics.
"We visited probably 100 of these companies over the past two years," TA Associates managing director Jeffrey Barber says, and settled on Vatterott because of its management team and the quality of its programs. It is not TA's first investment in education: The firm bought Florida Career College in 2004, and sold the school to Greenhill Capital Partners LLC and Abrams Capital LLC in 2007.
Barber has been following the education industry since arriving at TA nine years ago. "I've always viewed it as a retail or consumer service," he says, like the Gap or Abercrombie & Fitch. "The product itself is education."
A decade ago, information technology was a hot field. Health and other fields that are difficult to export have become more prominent. "The basic model, especially for good operators, hasn't changed all that much," Barber says.
Vatterott might open a campus or make an acquisition, he says, but the plan is not necessarily to acquire other schools. "If there are markets where there is a need, and we can handle it within the operating framework, we would consider that," Barber says.
There are other for-profit, secondary educators with the resources to acquire other educators.
One is the newly public Education Management. The Pittsburgh company owns the Art Institutes and has made a number of purchases in its 40 years. Former CEO Robert Knutson led it on a rollup of art schools starting in the 1970s.
Education Management expanded its curricula during the last recession and recovery. In 2001, it merged with Argosy Education Group Inc., which offers programs in business, health, psychology, education and other subjects.
That year it also acquired Halifax, Nova Scotia, business school ITI Education Corp.
In 2003, Education Management bought career degree providers American Education Centers and South University, of Savannah, Ga. The company also absorbed the Dubrulle International Culinary & Hotel Institute of Canada in Vancouver, British Columbia.
Providence Equity Partners Inc., Goldman Sachs Capital Partners and Leeds Equity Partners LLC acquired Education Management for $3.4 billion in 2006. The firms took the company public in October but maintain a stake.
An Education Management spokeswoman did not return calls about the company's outlook on acquisitions.
Meanwhile, Corinthian Colleges ended a five-year hiatus from mergers and acquisitions in October, when it agreed to buy the private equity-backed owner of Heald College for $395 million.
San Francisco's Heald offers associate degrees in healthcare, business and other professional fields. It has recently started a program in construction management and touts the opportunities that the American Recovery and Reinvestment Act, known commonly as the stimulus bill, will create in the field.
Corinthian says it was attracted by Heald's campuses throughout Northern California and its brand, which dates to 1863. The Santa Ana, Calif., company would look for other acquisitions of regionally accredited programs that would allow it to enter new markets or would expand its presence in existing markets. Targets should also have attractive programs and be accretive to earnings in the first year.
Operators in other niches could also buy into the post-secondary market. Testing company Princeton Review agreed to pay private equity firm Wicks Group of Cos. LLC $170 million for online trade school Penn Foster Education Group Inc. in October.
The target, formerly the International Career School, has 223,000 students in 150 countries. Bain Capital Venture Partners and Falcon Investment Advisors LLC financed the transaction for Princeton Review.
Buyers will have to consider the affect a stronger job market would have on their growth. Corinthian COO Peter Waller said during a November earnings call that the company does not expect unemployment to remain "as much as a catalyst as it was in fiscal year 2009."
Education valuations have tightened over the concern that the tailwind that has propelled enrollment could well become a headwind if the job market improves substantially. "We are on the wrong side of the curve with respect to the cycle," Sokol says.
There is also the prospect of regulatory scrutiny. The Securities and Exchange Commission made an inquiry into Apollo's methods for recognizing revenue, raising concerns that practices at other companies could be subject to critique. The Department of Education is also reviewing rules governing financial aid, which can support a majority of enrollments at some institutions.
TA's Barber suggests that shifts in the job market or in regulations are minor challenges for institutions that successfully teach skills and place students.
"You read all of the articles about the recovery, but you're hearing about a jobless recovery," he says. "As a backdrop, you've got to think about the transformation the U.S. has gone through, from a manufacturing-based economy to an information-based economy."
Education and training are part of that transformation, Barber says. "Education as a class has been growing at a pretty rapid pace," he says. "You need it to survive."
If employment rebounds and the growth rates fall, it would give proprietary educators even greater motivation to combine. Overseas acquisitions rather than domestic ones may tempt some of the large for-profit educator.
Still, the industry is unlikely to remain as crowded.
In most parts of the economy, the phrase "jobless recovery" may seem an oxymoron, or even a cruel euphemism. For the education business, however, there is another name for a 10.2% unemployment rate: It's called a "tailwind." Hard times are good times in education, particularly for companies that teach skills that qualify students for new jobs or help them advance in existing positions. 
