Sylvan Learning Systems plans to buy Mich. firm

January 19, 1995|By Michael Dresser | Michael Dresser,Sun Staff Writer

Sylvan Learning Systems said yesterday that it has signed a letter of intent to acquire a Michigan-based corporate training company -- the second expansion deal this month for the fast-growing Columbia company.

Sylvan President Douglas Becker said that the acquisition of The Pace Group of Farmington Hills, Mich., would add a company with 1994 revenues of $10 million to Sylvan's sales of about $40 million.

Sylvan's 1994 revenues already are expected to grow by another $5 million as a result of a Jan. 9 agreement to acquire Remedial Education and Diagnostic Services Inc. (READS), a Philadelphia-based tutoring company.

Sylvan is best known locally for its contract with Baltimore to provide after-school tutoring in city public schools. It also operates a nationwide chain of private tutoring centers, which it has used to build another line of business as the nation's largest provider of computerized educational testing services.

Pace provides large corporations with employee educational programs. The courses include basic reading and math skills and more advanced training in communications and management.

Mr. Becker said the acquisition of Pace fits Sylvan's plans to become a leading provider of educational services to corporations. He said Sylvan has a small line of business called Sylvan-at-Work that competes with Pace, but that it had not been a big revenue producer for his company.

"We didn't have the depth of management to grow that business as much as we wanted," Mr. Becker said.

The Sylvan president said the Pace deal will bring much-needed managerial talent into Sylvan's youthful executive ranks. Mr. Becker said the five managing partners of Pace would remain with the business, which will be run as a wholly owned subsidiary.

Mr. Becker said the deal is structured so that Sylvan pays relatively little up front, $3.25 million in Sylvan stock. The final payout to Pace's owners will be determined by that unit's profitability in 1997.

"It provides a massive incentive for them to stay and grow the business," he said. The formula provides that Pace's partners will receive 6 1/2 times pretax 1997 earnings from that subsidiary, payable in Sylvan stock.

Shares in Sylvan, which went public in December 1993 at $11, closed yesterday at $19 a share, down 25 cents from Tuesday.

Steve Rottinghaus, executive vice president and a director of Pace, said the company's managers were dubious when Mr. Becker first approached them but quickly found a basic compatibility between the two organizations. He also said Pace could benefit from Sylvan's capital strength and its satellite-linked network of tutoring centers.

Mr. Rottinghaus said Pace's senior managers, who are between 46 and 55 years old, all have extensive corporate experience. Mr. Becker is 28, while Sylvan Chairman Christopher Hoehn-Saric is 32.

"There's no question we have seasoned management and that they recognize that and respect that," Mr. Rottinghaus said.

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