Willis Stein Makes Post-Secondary Buy –

Willis Stein & Partners, which has been recently nibbling away at the snack food space, got its first taste of the education sector earlier this month. The Chicago-based firm joined with management to recapitalize Education Corp. of America (ECA), which operates Virginia College. Financial terms of the transaction were not disclosed.

Through the recap, Willis Stein became the lead investor in the post-secondary education outfit, acquiring approximately 80% of ECA. The seller, Chicago-based private equity firm Prospect Partners, will retain a small minority stake in the company while ECA “management has rolled a significant portion of equity over in the new [Willis Stein] investment,” said Willis Stein Principal Jeffrey Beyer.

ECA is a holding company formed by Prospect Partners in 1999. In April 1999, ECA acquired Birmingham, Ala.-headquartered Virginia College, a private, accredited, post-secondary educational institution with campuses in the South.

Kenneth Horne, who has led ECA since its inception, is retiring as CEO, but will continue to be a shareholder and remain involved in the company as a director. James Hutton, who served as ECA’s COO, will succeed Horne. Existing management, including Jim Tolbert, Diane Clower and Jim Foster, will remain in place.

For Willis Stein the investment comes after years of surveying the space. “We’ve been looking at the space for the past two to three years and the two real challenges that we’ve identified with it are, one: Finding the right platform with a price we can stomach and, two: Finding the right management team,” said Avy Stein, a co-founder and managing partner with the firm.

Willis Stein typically targets investments in U.S.-based middle-market companies with transaction values of between $75 million and $750 million.

The post-secondary education space makes sense to Willis Stein for a few reasons. First, the U.S. economy is changing from one based mostly on manufacturing to one based more on technical enterprises. Second, the employment market is flooded with positions that require training that often is not offered on the job. And lastly, decreasing state revenues and increasing state costs, makes the perfect storm for investing into a privately-run post-secondary education platform. Since the publicly-funded post-secondary schools “are not high on the list to receive state to subsidies,” in some cases, they cannot afford to offer the same breadth of curricula and services offered in the private sector, Stein said.

Virginia College offers courses in the auto tech and welding, business services, health and medical, criminal justice and culinary industries. Its campuses are located in Birmingham, Huntsville and Mobile, Ala.; Jackson, Miss.; Pensacola, Fla.; and Austin, Texas.

To spur growth in the ECA platform, Willis Stein will add levels of curricula to existing campuses and expand the college geographically. “There are a number of cities that are underserved, particularly in the Southeast where we are strong,” Stein said. He declined to name specific cities.

To finance the deal, Willis Stein enlisted an undisclosed amount of senior debt from Harris Nesbitt.

The firm tapped its $1.8 billion Willis Stein & Partners III LP fund for the transaction’s equity. As of March 2004, the vintage 2000 vehicle was approximately 60% invested, according to a Buyouts article published at the time.