Choose the word or set of words that is not related to the others:
A. Concord Law School
B. Technology Education College, Columbus, Ohio
C. Quest Education Corporation
D. The Washington Post Company
E. A graduate school of business
Until about five years ago, Kaplan Inc. was known entirely for questions like that. It was a college-test-preparation business, owned by the Washington Post Company.
But Kaplan has been growing and diversifying as quickly as any company in the for-profit higher-education market. Having founded Concord in 1998 and then buying the 30-college Quest chain in 2000, it is now showing every intention of becoming a major force in the field.
Last month, it added seven institutions to its career-college lineup, including the Ohio technology college in Answer B. More acquisitions will follow, including one that could invalidate the correct answer, E. Kaplan executives say they may buy an established M.B.A. program as early as this spring.
Postsecondary education “is an important part of our future growth,” says Jonathan Grayer, the company’s chief executive officer. “It’s a good business.”
The company clearly has large ambitions. Yet, because of the many different directions Kaplan is taking simultaneously, its strategy remains something of a puzzle.
Kaplan acquired its undergraduate colleges in three fell swoops, going from none to 41 in a year and a half. It bought Quest in August 2000, added five colleges for paralegal training in November 2000, and snatched up the Ohio college and two small chains in Pennsylvania and Texas in January. (It has closed one of the Quest campuses.)
With the deep-pocket support of its media-conglomerate parent, Kaplan says its plan is to more than double the number of colleges it owns -- to about 100 -- and build that college division into a half-billion-dollar enterprise. That’s about the size of all of Kaplan today.
Donald Graham, chairman and chief executive officer of the Washington Post Company, says he likes having his company involved in the buying and running of colleges: “It is emphatically a business you can feel very good about.”
Like any other acquisitive company, the Post looks for properties that can add to its bottom line. News-media properties of that sort are rare at reasonable prices, but opportunities are more plentiful in the higher-education industry. It is “a business in which we know our management is capable and can manage an acquisition,” Mr. Graham says.
Kaplan is also aggressively pursuing distance education, in which it has invested heavily but has yet to make a profit. The company enrolls nearly 11,000 students in a range of online programs that includes instruction in paralegal training, associate and bachelor’s degrees in business and information technology, and, at Concord, juris doctor and master’s degrees.
Mr. Grayer declines to give a timetable for the 100-college goal. But he says he expects Kaplan will own 50 career-college campuses by the end of 2002, by buying other colleges and creating new branches.
He also expects Concord’s profits to crack $1-million by 2003, and says that Kaplan’s online programs as a whole will begin operating at a profit by then as well.
The company is also moving to give its postsecondary activities more visibility. It is planning a name change for the Quest division to something along the lines of the Kaplan Colleges Group, and it will com bine the three parts of the company that now offer distance-education courses into one division within that group, which will probably be called “the Kaplan Colleges Online.”
It also plans to find a way to use the Kaplan logo and name on the bricks-and-mortar institutions themselves. “We don’t have an overdramatized view of our brand,” says Mr. Grayer, the CEO since 1994. In the test-prep business, he notes, people take courses and “it’s very clear if it works or not” -- their scores go up or they don’t. That same accountabilility, he believes, should appeal to students considering attending a Kaplan career college.
Kaplan considers its push into college-level education to be a logical extension of its strengths in test preparation, he says, despite the differences between the two. “The test-prep business is a one-time sale,” he says, while “the Kaplan Colleges is a ‘membership business,’ ” in which you have to prove yourself month after month.
Kaplan Inc.'s expansion into postsecondary education and other areas unrelated to test preparation began 11 years after the Post bought it from its founder, Stanley H. Kaplan.
In 1996, Kaplan bought Score!, which provides tutoring and enrichment programs for schoolchildren. Score had 12 centers and 7,000 students then; it has 150 centers and 60,000 students now, though it is still unprofitable.
Other purchases followed quickly: a series of companies that provide licensing preparation and continuing education in real estate, the securities and insurance industries, and other fields; a distance-education company that offers nondegree and associate-degree courses in criminal justice and paralegal studies, among other fields; and then its biggest acquisition ever, the $165-million purchase of Quest.
The postsecondary division is one of the company’s most profitable sectors, and is vital to Kaplan’s financial health. Over all, Kaplan lost $28-million in 2001, on revenues of $494-million. Company officials say the losses are magnified by the way the Post accounts for incentive pay and other costs. Without those charges, Kaplan would have shown a profit of about $13-million in 2001, and a loss of $25-million, rather than $41.8-million, in 2000. Still, Kaplan’s revenues were greater than those of any other division of the Washington Post Company except the newspaper itself. The parent company’s revenues for 2001 were $2.4-billion.
Quest’s revenues were $152-million, second to test-prep as Kaplan’s biggest business segment, Mr. Grayer says. Kaplan’s online-college offerings generated $11-million or so.
Still, compared with other for-profit higher-education companies, Kaplan has not yet established itself as a leading player. It is smaller than all but two of the nine publicly traded companies in the industry (Strayer Education and Whitman Education Group) in terms of both revenues and number of students.
Many Wall Street analysts and investors don’t see as much financial information about Kaplan as they do about its competitors, since the company, as a unit of the Post, doesn’t report as much. The Post rarely makes projections of company performance. And while it does break down some financial information about its subsidiaries, including Kaplan, the level of detail is not as great as it is in education-focused companies like Apollo Inc. or Career Education Corporation. That, plus its newness in the field, makes Kaplan a relative unknown.
When Kaplan bought Quest, some people in the industry said it had paid too much because it so badly wanted a beachhead. “They were eager to get into the game,” says one executive at a company that invests in education, who asked not to be named.
Others, however, have questioned Kaplan’s strategy for its expansion, suggesting that its access to Washington Post capital might be fostering an undisciplined approach that would never fly in a company that had to answer to Wall Street every quarter.
Kaplan is acquiring assets in education without a lot of logic, says John Katzman, president of Princeton Review -- Kaplan’s chief competitor in the test-prep business -- echoing a view voiced by several others. “They’re just all over the place.”
A few weeks ago, Kaplan outbid Princeton Review in acquiring Achieva, a company that uses online technology to help students in junior and senior high school improve their studying and test-taking skills. Though Kaplan did not announce a price, industry insiders said it had paid about $2-million. If so, then the company has paid about $23-million for the seven colleges it bought in Ohio, Pennsylvania, and Texas: It announced the Achieva purchase at the same time it revealed it was buying those colleges and said the acquisitions cost a total of about $25-million.
Kaplan officials say the purchase price for Achieva is confidential but call it a good deal compared with the $44-million that investors had reportedly poured into Achieva over the past four years.
Mr. Katzman concluded that Kaplan had overpaid for Achieva, “which is their way,” he says. The Princeton Review chief, who acknowledges his delight in “trash-talking Kaplan,” says he is also unimpressed by what he sees as its desire to be all things to all people in education.
Todd Parchman, a partner in a Baltimore firm that brokers the sale of education properties, says he can see why there might be doubts about Kaplan’s diversification. “You can, no question, get into too many businesses,” he says. In Kaplan’s case, however, the moves make sense, he says, because the company can apply its experience in recruiting and retaining students to its wider range of businesses.
Having brokered one sale to Kaplan and been turned down for others, Mr. Parchman says he can vouch for the company’s overall discipline in acquisitions: “They’re not just out there buying anything.”
Mr. Grayer says Kaplan has no qualms about what it has paid. Quest’s operating margins of 25 percent for 2001 prove that it was a good buy, and its profit potential is even greater, he argues. The chain has locations in only 13 states.
And, he argues, Kaplan didn’t overpay for the seven colleges it bought last month. Most industry leaders put the rate for such purchases at four to six times the previous year’s earnings of the acquired company. Kaplan figures the rate is five to seven times earnings. “We’ve never gotten to the top of the range,” Mr. Grayer says.
Yet, as industry leaders note, just being able to buy the colleges is not enough. Career Education, for example, is “very acquisition-oriented,” says Patrick K. Pesch, its executive vice president. But its higher priority is to find colleges that will be able to grow once the company has bought them. “What you do afterwards is more important,” he says.
When Kaplan bought Quest, the chain had 13,400 students; today, it has 17,000. Three-quarters of the increase is due to the company’s purchasing spree. Still, Mr. Grayer says of Quest, “we’re very comfortable with its organic growth.”
Some may regard Kaplan as a collection of education assets that don’t clearly fit together, but Mr. Grayer sees it differently: “The more markets we can serve well, the better.”
Adding Quest brought a new demographic group under Kaplan’s wingspan, says Gary Kerber, founder of the chain.
Most of the parents who sent their schoolchildren to Score, as well as the high-school and college students seeking to improve their performance on college and graduate-school entrance exams, are affluent. But career-college students generally aren’t; more than 70 percent qualify for federal loans and grants.
“They entered a whole different market here,” says Mr. Kerber of Kaplan, where he now runs the renamed Kaplan Colleges Group. In fact, one of the things he found appealing about joining Kaplan, he says, was that his company would be “another piece of the education puzzle for them.”
The colleges’ mission hasn’t changed, he adds. Students get trained and get a job, and “from that we get a backwash of referrals from graduates.” The colleges, which get about a third of their students that way, he says, offer certificates and degrees in 70 fields.
During the same period that Kaplan was making acquisitions, it was also investing millions of dollars in technology for a planned distance-education program, even though executives acknowledge that they didn’t know what kind of student market it might serve.
“We were playing offense,” says Robert Greenberg, the company’s executive vice president. He is also general manager of Kaplan College, linchpin of the online-education strategy.
The college, located in Davenport, Iowa, is one of the 30 institutions Kaplan acquired when it bought Quest. Formerly known as Hamilton College, it was renamed because Kaplan wanted its own, better-known name associated with the online offerings. The college is one of 11 in Kaplan’s postsecondary division that is recognized by a regional accreditor.
With upgraded offerings since the Kaplan takeover, enrollment in the online program has grown from about 1,000 students to 2,500. The company hopes that the numbers will continue to grow if the college wins approval from its accreditor, the North Central Association of Colleges and Schools, to offer bachelor’s degrees in criminal justice and paralegal studies. About 7,000 students take those courses now, through a Kaplan distance-education division that isn’t regionally accredited. Kaplan officials won’t speculate on enrollment projections, but they note that about half of the law-enforcement officers in the country lack bachelor’s degrees, and that many would qualify for promotions and higher pay if they get one.
The California-based Concord Law School, too, is growing, despite the high-profile slap it took from Supreme Court Justice Ruth Bader Ginsburg. In a September 1999 speech, she said she was uneasy with the idea of an online law school like Concord, where students could get a J.D. degree “with no face-to-face interaction with other students and instructors.”
The school enrolls about 900 students in its four-year program, 575 of them first-year. Concord says it has the second-largest part-time law-school program in the country, behind the Thomas M. Cooley Law School, in Lansing, Mich., and its 1,200 students. Tuition is $6,000 a year.
Concord’s dean, Jack R. Goetz, says its program is more accessible and affordable than those of traditional schools. It uses a standard curriculum but offers online lectures from prominent scholars like Arthur R. Miller of Harvard. It also requires students to join in regular online class sessions.
Mr. Goetz says the approach seems to work. At the end of the first year, all students take the so-called “baby bar exam,” required for anyone who hopes to take the California bar exam. Concord is not accredited by the American Bar Association but is registered as a correspondence school by the California Committee of Bar Examiners, so passing the state exam is one of the few ways for its students to receive a license to practice. Concord students’ pass rate is above 40 percent, compared with the general average of 25 percent. The school expects to graduate its first eight students in October.
Kaplan considers Concord one of the successes of its diversification. But it once more illustrates the criticism of whether Kaplan has been thinking through its strategy: The school doesn’t require its students to take the LSAT -- so they don’t even need a Kaplan test-prep class to help them get in.
KAPLAN’S COLLEGES
Arizona
Arizona Paralegal Training Program, Phoenix*
Long Technical College, Phoenix
California
Andon College-Stockton
Andon College-Modesto
California College of Technology, Sacramento
Maric College-San Diego
Maric College-North Country in Vista
Modern Technology College, North Hollywood
Colorado
Denver Career College, Colorado Springs*
Denver Career College, Denver*
Georgia
Bauder College, Atlanta
Iowa
Hamilton College-Cedar Falls
Hamilton College-Cedar Rapids
Hamilton College-Des Moines
Hamilton College-Mason City
Kaplan College-Davenport
Maryland
Hagerstown Business College
Nebraska
Lincoln School of Commerce, Lincoln
Nebraska College of Business, Omaha
New Hampshire
Hesser College-Concord
Hesser College-Manchester
Hesser College-Nashua
Hesser College-Portsmouth
Hesser College-Salem
Ohio
Ohio Institute of Photography & Technology, Dayton
Technology Education College, Columbus**
Pennsylvania
CHI Institute-Broomall
CHI Institute-Harrisburg
ICM School of Business & Medical Careers, Pittsburgh
Thompson Institute-Harrisburg**
Thompson Institute-Chambersburg**
Thompson Institute-Philadelphia**
Tennessee
Southeastern Career College-Nashville*
Texas
Career Centers of Texas-El Paso
San Antonio College of Medical and Dental Assistants-McAllen
San Antonio College of Medical and Dental Assistants-San Antonio
Southeastern Career Institute-Dallas*
Texas Careers-Beaumont**
Texas Careers-Laredo**
Texas Careers-San Antonio**
Virginia
Dominion College-Roanoke
* Acquired in November 2000** Acquired in January 2002
SOURCE: Kaplan, Inc.
http://chronicle.com Section: Money & Management Page: A36
