Heavy demand for publicly held online colleges but no supply
Consultant recommends reverse mergers as IPO alternative
BOCA RATON, FLA - University Consultants LLC, a research and advisory firm, contends that investors’ appetite for shares in for-profit colleges and universities will continue unappeased unless the schools avail themselves of the reverse merger process. As the shares of online schools like Capella University (CPLA) and American Public Education (APEI) move up dramatically after their IPOs, more investors are attracted to the sector. But most private colleges, particularly those providing courses exclusively online, are too small to interest traditional investment bankers in taking them public.
To solve the supply problem, Joseph Schmoke, University Consultants’ founder, suggests that the boards of growing for-profit colleges and universities turn to a less traditional method of becoming publicly held, a reverse merger. Schmoke recommends that school owners consider the reverse merger process and, for those institutions that require an injection of capital, possibly a transaction with a SPAC, a special purpose acquisition company.
The business of online education grew rapidly from 2000 to 2005, with many schools’ enrollment, revenue and staff size doubling every year as the marketplace for online learning exploded. This rapid growth created bottlenecks in technical capacity as well as personnel problems. Since the fundamentals of the business were sound, and market demand continued strong, most schools overcame their problems and resumed their growth. Investors recognized this resurgence and the appetite for investments in colleges and universities broadened.
Unless private universities grow to a size that interests traditional investment banks it appears that the only way to satisfy the growing demand for shares in publicly traded schools is a reverse merger trend. Schmoke notes that a major barrier to this method of going public is the lack of experience by school managers in operating in a public environment. He suggests that schools might add this experience by retaining an executive or two from their reverse merger partner companies.
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About University Consultants LLC
Founded in 1980, this Boca Raton, Florida boutique firm has most recently advised on, and originated, transactions in the training and education industry. University Consultants’ founder, Joseph Schmoke, also serves as CEO of a for-profit online university.
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