New Owners Fail To Improve Chain Of Career Schools
Monday, August 13, 2007
Three years ago, a private-equity fund and other investors took over the Chubb Institute, a troubled chain of career schools, with high hopes that they could put the business on the right footing.
Three years later, the chain has lost its accreditation in Chicago. Former students are suing in New Jersey and Pennsylvania. And financial problems have forced a school to close in Arlington.
Not all private-equity deals work out for the best.
Great Hill Partners, a fund based in Boston, took over the Chubb schools in 2004 at a time when many in private equity flocked to the fast-growing for-profit education industry.
"We are serving a much-needed demographic," said Bill Hillard, the newly appointed chief executive of High-Tech Institute, Chubb's Phoenix-based parent company. The previous company's chief executive and part-owner recently stepped down. "Like any organization, issues always arise from time to time," Hillard said.
The school pledged to help students affected by the problems complete their studies and reach graduation. Great Hill Partners declined to comment.
Private-equity funds took interest in the for-profit career education industry at the beginning of the decade, when the dot-com bubble burst and investors began looking elsewhere for opportunities. Some gravitated to the sector figuring that as the U.S. economy shifts its focus from manufacturing to service-related enterprises, demand would grow in fields such as computing and nursing.
About 60 funds have invested in the sector over the past 10 years, said J. Mark Jopling, head of Jopling Inc., an investment banking firm that specializes in private post-secondary education.
The Chubb schools got their start in 1970 when the Chubb Corp., an insurance company, set up a program to train its computer staff. Over time, the school branched out to offer medically related programs.
But by 2004, the schools had run into regulatory troubles and were sued by former students, who claimed the schools promised more than they could deliver. Its expenses exceeded revenue by more $9 million by the end of fiscal 2005, according to records at the State Council of Higher Education in Virginia.
The Chubb Corp. struggled to find a buyer and eventually sold the schools for $1 to Great Hill Partners and High-Tech Institute, according to Virginia filings.
"This was a business on the decline and they tried to fix it," said Neil Lefkowitz, a lawyer who specializes in advising funds interested in post-secondary education companies. Lefkowitz represented a private-equity fund that had considered buying Chubb at the time. "It's difficult to turn around in this field. If your reputation is damaged, it's very, very tough."