Presentation on theme: "Kuhn Capital + The Roundstone Group Introduction The Industry Now and What Our Buyers Like Tom Flaherty, Kuhn Capital/The Roundstone Group Trends in."— Presentation transcript:
Kuhn Capital + The Roundstone Group Introduction The Industry Now and What Our Buyers Like Tom Flaherty, Kuhn Capital/The Roundstone Group Trends in Business Services Amy LaBan, Lake Capital Trends in Software Howard Smith, First Analysis Trends in Transaction Processing Franco Turrinelli, William Blair
Kuhn Capital + The Roundstone Group M&A Today The Tech, Information and Business Services Terrain Now and Next Panel February 12, 2004
Kuhn Capital + The Roundstone Group Overview Who Are Our Buyers? What Do Our Buyers Like? The Dilemma What To Do? The Market Now What Industries Do Our Buyers Like?
Kuhn Capital + The Roundstone Group Who Are Our Buyers? Private equity firms seeking platform companies Portfolio companies seeking add-on acquisitions
Kuhn Capital + The Roundstone Group What Do Our Buyers Like? Recurring revenue streams $50 million or more in revenue (platform) Leveragable technology or low cost resources Moderate to high growth Strong management Good cash flow/EBITDA margins Ability to use financial leverage Valuation (5x or 6x EBIDTA) for the right platform will consider up to 10x EBIDTA
Kuhn Capital + The Roundstone Group The Dilemma In today’s market, these companies are few and far between at reasonable prices
Kuhn Capital + The Roundstone Group The Market Now Public valuations in certain sectors are currently high (Transaction Processing, Post Secondary Education, Offshore - India) Vast amount of available private equity Large private equity firms with substantial capital need to do larger deals Private equity firms have difficulty competing with strategic buyers on valuations Relatively better opportunity for financial returns in small to medium sized companies
Kuhn Capital + The Roundstone Group What To Do? Be disciplined Look to small to medium sized companies where valuations are more reasonable Consider turnaround situations Assume greater operational risk
Kuhn Capital + The Roundstone Group What Industries Do Our Buyers Like? Transaction Processing Insurance BPO Outsourcing Offshore (IT and BPO Outsourcing) Post Secondary Education
Kuhn Capital + The Roundstone Group Why Post Secondary Education Market? Large, fragmented market Good demographics Barriers to entry - accreditation, Title IV regulations Solid economics - pricing, margins, and government student loans Valuation high for large public companies but still reasonable for smaller private companies Opportunities to create shareholder value
Kuhn Capital + The Roundstone Group Total Expenditure Post Secondary education market is greater than $260 billion, accounted for 2.8% of GDP in 2000. Source: US Department of Education; LEGG MASON: Industry Analysis Summer 2003
Kuhn Capital + The Roundstone Group Enrollment Fall enrollment increased from 12.1 million students in 1980 to 15.3 million in 2000, and is projected to reach 18.2 million through 2012 Source: National Center for Education Statistics: Digest of Education Statistics, 2002.
Kuhn Capital + The Roundstone Group Market Players During the 2001–02 academic year, there were 6,458 Title IV participating institutions in the US, of which 37% (2,418) were for-profit private institutions Source: National Center For Education Statistics, Post Secondary Institutions in the United States: Fall 2001 and Degrees and Other Awards Conferred: 2000–01.
Kuhn Capital + The Roundstone Group Tuition Pricing College tuition and fees have increased over the last 23 years at a CAGR of 7.1% for private four-year institutions, and a CAGR of 6.4% for public four-year institutions Source: Education Commission of the States, Trends in College Pricing 2003
Kuhn Capital + The Roundstone Group Major Players CompanyTicker # of Campuses Enrollment Total ProgramsReport Date Apollo Group APOL67196,600 Bachelor – Doctorate Aug 03’ Career Education Corp CECO7463,000 Diploma – Master Dec 03’ Corinthian Colleges CCDC12543,229 Diploma – Master Jun 03’ DeVry, IncDV2641,075 Associate – Master Jun 03’ Education Management Corp EDMC4739,977 Non-degree – Doctorate Jun 03’ ITT Educational Services ESI7433,153 Associate - Bachelor Dec 03’ Strayer Education, Inc STRA2513,928 Associate – Master Dec 03’ Concorde Career Colleges CCDC125,579 Diploma – Bachelor Dec 03’ Source: Corporate reports
Kuhn Capital + The Roundstone Group Corporate Valuation Source: Corporate reports and The Roundstone Group estimations CompanyRevenues (ttm) EBITDA (ttm) EBITDA Margin P/E (ttm) EBITDA Multiples as of 2/2/04 Apollo Group Nov 03’$1,440m$473m33% 52.5 26 x Career Education Corp Sep 03’$1,050$20119% 51.9 25 x Corinthian Colleges Dec 03’$644$14523% 37.4 19 x DeVry, Inc Sep 03’$732$13418% 39.5 16 x Education Management Corp Sep 03’$681$14421% 42.8 17 x ITT Educational Services Sep 03’$523$11622% 44.1 20 x Strayer Education, Inc Sep 03’$138$5339% 54.9 21 x Concorde Career Colleges Sep 03’$71$1115% 28.6 14 x Average 24%44.020 x
Kuhn Capital + The Roundstone Group Private Equity Groups Source: Corporate Reports Private EquityPortfolio CompanyAdd-on Acquisitions Arena CapitalInternational Education Corp United Education Institute Advanced Career Training Great Hill PartnersHigh-Tech Institute Cambridge College The Bryman School Allied (Medical) College GTCRForeFront Education Berks Technical Institute Schuylkill Insitute of Business & Tech Florida Technical College The NewSchool of Architecture & Design Platt College (CA) Illinois School of Health Careers
Kuhn Capital + The Roundstone Group Private Equity Groups Source: Corporate Reports Private EquityPortfolio CompanyAdd-on Acquisitions Huron CapitalDelta Educational Systems Career Technical College McCann School of Business & Technology Miami-Jacobs Career College Miller-Motte Technical College The Creative Circus, Inc Prospect PartnersEducation Corp of America Virginia College Medical Career Center VC Tech William Blair CapitalUS Education Corp Apollo College American Institute of Health Technology Silicon Valley College Western Career College
Kuhn Capital + The Roundstone Group M&A Activities Strategic BuyersAcquired companies in 2002-03 Career Education Corp Western School of Health & Business CareersFormastrat SA Whitman Education CorpMissouri College Education Management Corp US Peroxide Dubrulle International Culinary & Hotel Institute Bradley Academy for the Visual ArtsSouth University American Education CentersInstitute of Digital Arts UNAB; AIEPMarbella Sylvan Learning Systems National Technological UniversityWalden Glion Group SAUniversidad de las Americas (20%) CMA Kitchener CampusLearning Tree Corinthian CDI Education CorpWyo-Tech Acquisition Corp Career Choices IncNational School of Technology East Coast Aero Tech LLC Concorde Career College North Texas Professional Career Institute Extended Health Education DeVry IncRoss University Source: Corporate reports
Kuhn Capital + The Roundstone Group Selected Transactions BuyerTargetDate Purchase Price ($ million) Sales xEBITDA x CorinthianCDI Education Corp6/24/2003$377 x Career Choices Inc6/10/2003$562 x9 x East Coast Aero Tech LLC6/10/2003$597 x Wyo-Tech Acquisition Corp7/1/2002$849 x National School of Technology4/1/2002$14 5 x Education ManagementAmerican Education Centers6/24/2003$1162 x10 x CorpSouth University4/29/2003$503 x10 x DeVry IncRoss University3/19/2003$3105 x12 x Career Education CorpWhitman Education Corp3/26/2003$2452 x15 x Wellspring CapitalVatterott College1/17/2003$1052 x6 x Sylvan Learning SystemsGlion Group SA9/4/2002$1611 x Average2.3 x9.0 x Source: Corporate reports and The Roundstone Group estimations