Expanding Its Reach in Higher Education, Kaplan Buys Quest, a Chain of Commercial Colleges By GOLDIE BLUMENSTYK
Kaplan Inc., a test-preparation company that has edged into higher education with its online law school and other ventures, announced on Tuesday that it plans to buy a company that owns a chain of 30 commercial colleges that specialize in business, information technology, and health care.
Kaplan, a division of the Washington Post Company, is paying $165-million for the company, Quest Education Corporation of Roswell, Ga.
Quest-owned colleges, most of which operate under their own names, are located in 11 states, and enroll a total of more than 13,400 students. The colleges -- 10 of which are accredited by regional associations -- offer bachelor's and associate degrees, and certificate programs.
Quest also operates an online division with about 1,000 students -- Quest College -- that is accredited by the North Central Association of Colleges and Schools to award associate degrees. Its accreditation to award bachelor's degrees is pending. The online program is one of 15 in the United States approved to offer financial aid to all distance-education students under a pilot program authorized by the Department of Education.
Online learning is also a priority for Kaplan, which operates its Concord University School of Law and a number of other law-related educational programs under an umbrella organization called KaplanCollege.com.
In a statement announcing the deal, Jonathan Grayer, president and chief executive officer of Kaplan, said the company would "now be able to offer an even broader spectrum of services, including regionally accredited associate and baccalaureate degrees, to a much wider array of potential students." He declined to be interviewed for this article.
Industry observers said they expect Kaplan to try to take fullest advantage of Quest's online accreditation, perhaps with a goal of challenging companies like the Apollo Group, which is pushing hard to promote its University of Phoenix Online.
Gerald R. Odening, a managing director and education analyst with Chase H & Q, an investment bank, said Quest had been "way too conservative" in developing its online program. "I think Kaplan will exploit it to its fullest potential."
Vince Pisano, Quest's chief financial officer, said the companies hadn't talked specifically about competing with Phoenix, but added, "We think there's a large opportunity online, as well as on the ground."
Quest has made a point of announcing that it was interested in acquiring other colleges. It has even posted a notice to that effect on its Web site. Mr. Pisano said the Kaplan deal doesn't change that. Earlier this year, an analyst familiar with the company speculated that Quest might try to acquire either EduTrek International or the Whitman Education Group, both of which are publicly traded and face some financial difficulties.
Although Quest had not said publicly that it was looking to be bought, several industry observers said that the company had become an attractive acquisition target because it was worth more than its stock price reflected.
An executive at one investment fund that recently raised its stake in Quest said its officials did so because they considered Quest a well-run company that was "undervalued." The firm, Stadium Capital Partners, of Palo Alto, Calif., now owns nearly 9 percent of Quest. The executive, Catherine H. Lee, said her firm was not aware that any deal was pending and that her firm had intended to hold the investment for three to five years. She said that the fund had not decided whether to accept the Kaplan offer, but that the deal seemed like "a good fit with what Kaplan wants to do." Three other investment funds own comparably sized stakes in Quest.
Kaplan has offered to buy the company for $18.35 a share. For most of the year, Quest stock traded at $7 to $10 a share. It closed at $9.75 on Monday, before the deal with Kaplan was announced. By noon on Tuesday, the stock price had climbed 85 percent and closed at $18.06. In recent weeks, analysts had said the stock was worth $16 to $18 a share.
Quest was founded in 1988 as Educational Medical Inc. Gary D. Kerber, its president, formed the company and began acquiring colleges that offered programs in health care. The company changed its name in 1996, to reflect the broader focus of colleges acquired over the years. It went public in late 1996.
For the year ending March 31, the company had net revenues of $115-million and net income of $7.5-million.