Net Present Value: Investing in education...for a profit

Saturday, December 18, 2004

Investing in education...for a profit

Recently, I was at tea at some friends' home in Menlo Park and heard about how they were trying to determine opportunities in the education sector because, as mentioned in this New York Times story (registration required), "It is second only to health care in its share of the United States economy, accounting for nearly 9 percent of the gross domestic product, said Michael Moe, chief executive of ThinkEquity, an investment bank." Now Michael Milken is continuing his quest to own different aspects of the educational sector:

Those sales skills were on display last week, when Mr. Milken sought to persuade lenders to support his $1.1 billion acquisition of KinderCare Learning Centers, an operator of day care centers. KinderCare, he told the lenders gathered at the Waldorf-Astoria, had the potential to offer more to parents once it was combined with a business he controlled, the Knowledge Learning Corporation.

...Mr. Milken, however, says he believes that he has an edge because he owns stakes in a range of businesses catering to children. Besides LeapFrog, these include K-12, a developer of online curriculum that is led by William J. Bennett, the former secretary of education; and Knowledge Learning, the day care center operator.

By owning an interest in an educational toy company and a curriculum developer, Mr. Milken has "content" that he can then market to children at his day care centers, his supporters say. Mr. Milken likens this approach to media entrepreneurs' strategy of combining cable channels and programming, said Joshua Schwartz, an investment banker whose firm, East Wind Advisors, specializes in media and education companies.

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