Reading, writing, arithmetic and risk

Transformation: The Baltimore company known for tutoring children ventures into teaching English and for-profit higher education abroad.

August 25, 2002|By Andrew Ratner and Stacey Hirsh | Andrew Ratner and Stacey Hirsh,SUN STAFF

VILLAVICIOSA DE ODON, Spain -- About 20 miles southwest of Madrid, past suburbs with glass office buildings, condominiums and big-box retailers consuming the land where farmers once raised wheat and wild bulls, lies the future of a Baltimore company.

Sylvan Learning Systems Inc. owns and operates a college here.

As it does in Chile, Switzerland, France and Mexico.

As it might someday in India. And maybe China.

Quietly, the company that made its name tutoring American children in strip shopping centers has become a pioneer in a quite different market: for-profit higher education around the world.

Sensing limits to tutoring a few years ago, the company began seeking other avenues of growth. A study it commissioned led it to international higher education, a market with seemingly vast potential and virtually untouched by major companies.

Last year, the international operations, including the colleges and a chain that teaches English to adults, generated slightly more than half of Sylvan's $484.8 million in revenue. Though it is still perceived by the public largely as a tutoring company for American school kids, its moves abroad have gained the interest of investors and educators.

Education might be as old as the day civilized man put chisel to slate, but profiting from it on a grand scale is a relatively new development beyond textbook publishing. For that reason, opinions about Sylvan's foreign foray range from unrestrained adulation to deep skepticism.

"It's one of the best business home runs I've seen in quite a while. It's the best of American entrepreneurship to go and export what we do best," said Kosmo Kalliarekos of the Parthenon Group, a Boston firm that consults for education companies, including Sylvan.

Not everyone is convinced Sylvan's new course is correct.

"The best business is the tutoring business, a truth that is lost on investors due to the noise surrounding the rest of the enterprise," Howard M. Block, a Banc of America Securities analyst, wrote in a report last month that sent the stock tumbling and spurred investors to trade 4 million shares in two days -- quadruple the norm for the stock.

The company is, indeed, still best-known for its K-12 tutoring centers.

The name's familiar

Some in Congress referred to the millions of dollars in tutoring grants in President Bush's education reform program as the "Sylvan amendment." Jay Leno mentioned the company in a joke the other night on his Tonight Show and got an immediate rise, and instant recognition, from his studio audience. The company even received odd praise about its teaching style from "Unabomber" Theodore J. Kaczynski: Before his capture in 1996, he wrote in his manifesto that the company had "great success in motivating children to study."

"All of a sudden, you would say `Sylvan' and instead of people saying, `What's that?', they'd say, `Oh, I've heard of that,'" Joan Rainer said recently as students lined U-shaped tables at one of two centers she franchises in Philadelphia.

But Sylvan's other ventures -- from English tutoring in foreign countries to college degree programs on the Internet -- now produce more income than the after-school help for kids and an increased share of the profit.

More money, new look

Sylvan's higher-education profits climbed to $26 million last year from $2 million in 1999. K-12 tutoring profits grew to $35 million from $26 million during the same period, according to the company's most recent annual report.

Sylvan altered its corporate logo to subtly reflect the geographic and demographic shift in its trade. The silhouette of a boy with a soup-bowl haircut -- "Johnny Reader" -- was changed last year into a more abstract humanoid form that masked gender and age.

Sylvan now runs more learning centers in Europe than in North America, most under the brand name Schulerhilfe, a German company that Sylvan acquired for $29.5 million in 1998.

Sylvan also operates an English-tutoring chain overseas -- Wall Street Institute -- whose 100,000 customers are often young professionals seeking careers with multinational corporations. Last winter the company hired an Internet executive from Hong Kong to lead a push into Asia, considered vast fertile ground for English learning. It even reported post-Sept. 11 enrollment gains in Saudi Arabia, where a Wall Street Institute is across from the business owned by Osama bin Laden's family.

Heading a trend

Sylvan is part of a trend -- some say it's leading it -- of education service providers moving in several directions and on several continents at once. Others similarly branching out include Kaplan Inc., a well-known test-preparation company that has opened an online law school.

Another is the University of Phoenix, which runs the largest chain of colleges for adults seeking degrees in the United States and is pursuing that market overseas. The Washington Post Co. owns Kaplan and is an investor in the international arm of the University of Phoenix.

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