Mid-Market Shops Score Over 3x On Education Deal

Target: U.S. Education Corp.

Price: $290 million, or 11x LTM EBITDA

Buyer: DeVry Inc.

Seller: Chicago Growth Partners, ClearLight Partners

Legal Adviser: Seller: Kirkland & Ellis

Chicago Growth Partners and ClearLight Partners recently scored a healthy return on a six-year investment, agreeing to sell U.S. Education Corp., an operator of health care schools, to DeVry Inc. for $290 million. The firms earned between three and four times their investment, sources familiar with the investment told Buyouts.

Chicago Growth—then known as William Blair Capital Partners—teamed up with ClearLight Partners, a Newport Beach, Calif.-based mid-market buyout shop, to back the creation of U.S. Education in June 2002 with an investment of $50 million. The firms also made an undisclosed investment in the company in February 2003 to support the acquisition of Western Career College, a post-secondary educational institution in Northern California. Executives at both Chicago Growth and ClearLight Partners declined to reveal their total investment in the company.

The firms had planned to shop U.S. Education Corp. later this year but DeVry, the Oakbrook Terrace, Ill.-based operator of several career colleges, including DeVry University, preemptively approached them with an offer. The deal is expected to close in September. “With the approach of DeVry and the aggressive price they offered, with some haggling, we thought it was the right decision,” said Rob Healy, managing partner at Chicago Growth.

Based in Mission Viejo, Calif., U.S. Education offers certificate and associate degree programs in nursing, radiography, surgical technology, pharmacy technology, dental hygiene, and medical and dental assisting from 17 campuses in the western U.S. It generates about $144 million in revenues, said Michael Kaye, managing partner at ClearLight. The purchase price represented 11x the company’s trailing 12-month EBITDA, according to a report by analysts at Robert W. Baird & Co.

That same report noted that bullish expectations for the post-secondary education market are based on population growth, a shift in the U.S. economy to service-based jobs from manufacturing ones, and a growing wage gap between people with a post-secondary degree and those with only a high school diploma.

During their ownership, Chicago Growth and ClearLight funded a total of four add-on acquisitions, opened new campuses and expanded offerings to include higher-end courses, which are in high demand due to a nationwide shortage of nurses, Healy said. The firms had financed the company with less than 50 percent debt through a senior secured credit facility provided by Bank of Montreal.

Chicago Growth, which closed its second fund at $500 million earlier this year, has been a longtime investor in education. In June 2007 it sold eInstruction Corp., a Denton, Texas-based company that makes application software for the education market, to Leeds Equity Partners for an undisclosed amount.

Other firms owning education companies are due for exits include Frontenac & Co.—a prior investor in DeVry—which has an investment in Rasmussan College Inc. going back to 1996; Great Hill Partners, which invested $11 million in Northface University in July 2003; The Riverside Company, which teamed up with Ground Swell Equity Partners to buy ATI Enterprises Inc., which owns and operates vocational schools, in April 2004; and Wellspring Capital Management, which bought Vatterott Educational Centers in January 2003 for $105 million. Representatives of these firms either declined to comment or did not return calls.