Oct. 13, 2015 6:09 AM ET
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…)
Laureate Education files its intentions for an IPO, but there are plenty of reasons to be cautious.
The company has expanded rapidly in the last few years. The company’s debt has grown just as quickly.
Laureate Education operates on a business model that is now dated. Its business practices are deemed questionable by some sources.
The problem with going public is that a company’s dirty laundry goes public with it. When Laureate Education announced its intent to go public last week, it was forced to release the $4.7 billion in debt that it would be taking with it.
Good education was never going to be a big business. The human and academic resources involved with providing a solid education are enormous. Hence, debt is a natural part of running an educational institution.
But education is changing as the Matheson team have noted. The number of startups that have found cheaper and more egalitarian ways of educating the masses demonstrate that education can be done differently. All it takes is a change of perspective and the free exchange of resources.
A belief in the power of education has propelled MOOCs from being a hobby to a full-blown system of education.
This does not seem to worry Laureate Education. It has expanded rapidly in the last few years and shows few signs of slowing down. The company suggested that it will use the IPO to raise capital as well as pay down debt.
There is no word on how much Laureate expects to raise from a successful IPO.
Laureate Education is the company behind a series of international for-profit colleges. It is based in Baltimore and continues to remain the largest for-profit education corporation in America. This status is granted by enrollment numbers, not by profit.
It began in 1989 with the start of Sylvan Learning Systems. The company began to focus on higher education in 1993. It changed its name to Laureate Education in 2004.
Laureate currently owns 88 academic institutions in 28 countries around the globe. It offers education in fields like information technology, law, health sciences, engineering, business and medicine.
The company is infamous for its telemarketing schemes. However, most of its work happens outside the U.S. Many of its schools are based in Latin America but the system holds over 1 million students from around the world.
Laureate Education’s mission statement is to expand the access to quality higher education and make the world a better place. The company rightfully argues that a better educated society contributes to more stable economies and countries.
Is education a good investment?
Laureate Education operates in countries with a growing middle class. As emerging markets, these are often good investments. It does most of its business in Latin America. The current education institutions are unable to keep up with the growing demand of the middle class. As such, Laureate is primed to step in to take over where current infrastructure lacks.
If you are of the Democratic persuasion, you might note that both Bill and Hillary Clinton are involved in the company. Bill received $16.5 millionbetween 2010 and 2014 to act as a spokesperson for the company.
The company has expanded in the last few years. It spends a minimum of $8.6 million year on acquisitions. This has resulted in a revenue boost from $2.9 billion to $4.4 billion.
Reasons to avoid Laureate
Laureate Education may have been novel in 1993 or even in 2004. But the startup scene has created platforms like Coursera, Udemy and edX. These platforms have mastered the art of egalitarian higher education. Laureate tries to maintain an outdated and expensive business model in a world that by-passed it five years ago.
Laureate has also been accused of bad business practices. The group purchases private colleges that struggle to make ends meet. It then turns them in franchise, or shell, colleges. The company is then said to remove most of the qualified staff to lower the school’s standards. This results in a higher turnout of paying students.
Laureate is one of the biggest users of telemarketing schemes. It also spends an extortionate amount of money on other types of advertising. It’s reported that the group spends $200 million every year on advertising. Finally, it pays commission fees to recruiters in other countries. This has been illegal in America since 1992.
The company looks to grow enrollment at its schools, but some accuse it of not spending enough to support the growing enrollment. Yet, it has increased its debt to $4.7 billion. It also posts annual losses between $85.1 million and $210 million each year.
The Bottom Line
At the end of the day, investors, and student’s, money would be better spent elsewhere in the education sector. Investing in new school technologies and new education platforms is the best way to ensure that education reaches the masses. But if you factor in Laureates’ unsavory business practices and its debt load, it seems that its IPO is not out to help anyone but itself.