Long Term 20% Growth Rate For Education Companies In China And India: Acquisition Strategy Will Become Norm According To Industry Expert

• On 11:38 am EDT, Wednesday September 9, 2009

67 WALL STREET, New York - September 9, 2009 - The Wall Street Transcript has just published its Education Report offering a timely review of the sector to serious investors and industry executives. This 57 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Management Teams -- Secular Trends -- Regulatory Concerns -- Focus on Quality -- Developing Postsecondary Education Programs -- Growth in Postsecondary Education -- Online Education -- International Students -- Student Funding -- Execution Risk -- Management Transition -- Acceleration of Enrollment Rates -- Return on Invested Capital -- Long Term Prospects -- Regulatory Uncertainty -- Valuation Levels -- Stafford Loans -- Earnings Growth -- Opporunity for Growth -- For-Profit Institutions -- Nontraditional Students -- Postsecondary Tuition -- Domestic Players -- Jobs Market -- Decline in Stock Prices -- Fundamental Trends -- Valuation Levels -- Postsecondary Education in China -- Global Education -- Growth Prospects

Companies include: SkillSoft plc (SKIL); Rosetta Stone Inc. (RST); American Public Education Inc. (APEI); Apollo Group Inc. (APOL); Bridgepoint Education Inc. (BPI); Career Education Corp. (CECO); Capella Education Co. (CPLA); DeVry Inc. (DV); ITT Education Services Inc. (ESI); Grand Canyon Education Inc. (LOPE); Strayer Education Inc. (STRA); Blackboard Inc. (BBBB) and Universal Technical Institute Inc. (UTI); Corinthian Colleges (COCO); Lincoln Educational Services (LINC); School Specialty (SCHS); New Oriental Education & Technology Group (EDU); Princeton Review (REVU)

In the following brief excerpt from just one of the 14 interviews in the 57 page report, an industry expert discusses the outlook for the sector and for investors.

Ariel Sokol is an Analyst, covering the Education sector. Mr. Sokol joined Wedbush Morgan Securities in March 2006 as a Senior Research Associate and became an Equity Research Analyst in 20008, covering Enterprise Software. He then transitioned coverage to Education. Before that, he was a Research Associate at Natexis Bleichroeder covering Media & Entertainment. Prior to that, he worked as a consultant at PricewaterhouseCoopers and WestEnd New Media. Mr. Sokol holds a BA degree in History from Amherst College and an MBA degree from Columbia Business School.

TWST: Does acquisition make sense in this industry?

Mr. Sokol: Acquisition makes a lot of sense, but obviously it depends on the kind of acquisition. Are you acquiring an entity in a new underserved market or in a new geography, particularly the international market? Acquisitions introduce levels of execution and integration risk and for the most part aren't necessarily the best way to grow your business, but if you have developed a world-class platform and you can extend a new opportunity onto that platform, then it makes a lot of sense.

TWST: Has this worked in the past?

Mr. Sokol: It has worked for other industries in the past. I used to cover software stocks and that's basically the business model for small or large software companies - to either acquire or be acquired. A number of large organizations exist (the Ciscos of the world, the Oracles of the world) that have developed great distribution platforms and a great sales force, which then add new products to an existing expense structure and eke out more profits. If you think about many of these postsecondary companies, they have the right talent and management in place and technology platforms that they can extend with new offerings. So it can work. Over the last several years, you haven't seen that much acquisition occurring from the publicly traded companies, although we suspect that some companies will do so, and in particular, we expect this from Apollo Group, the company that operates the University of Phoenix. Management there has mentioned their desire to do so; in fact, they recently acquired a company called BPP Holdings. They intend to use the world class marketing machine that they've developed in making the University of Phoenix the leading market funded institution in the country, and implement their processes to pursue growth in Europe.

TWST: Is there good international opportunity for these companies?

Mr. Sokol: Yes. Arguably there is much better growth than you would ever see in the United States. Here, you're talking about a secular growth story that's still subject to the economic cycle. Yes, only 30% of adult Americans have a Bachelor's degree. But then you talk about international growth and think about all the emerging developing countries - Brazil, China and India - where they need to get these degrees as they continue to advance economically. And you take a look at the higher education growth rates in China alone - we think you can grow at 20% year over year for many years before achieving any level of saturation without concern of that country's economic cycle. There's a tremendous opportunity abroad.

TWST: Can they translate their business and educational model to these international markets easily?

Mr. Sokol: The real question is how easily it can be done. I mean, there are different regulations abroad, there's the question of who's going to pay for the education, and just developing relationships in those specific countries and understanding the tenor of the government and how the government will work with the private market. If it were easy to grow abroad, you'd find many companies expanding abroad today. So given the fact that only some companies have been very successful in doing so, like Laureate, it's fair to suggest that international expansion isn't particularly easy to do, which explains the gradual toe-dipping into these new markets by companies like DeVry (DV) and Apollo thus far. They haven't necessarily gone full force into these foreign markets but rather are gradually learning new markets from a small base.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 57 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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