Apollo Global Management Inc. is known for its unrestricted business. Not so long ago, the private equity firm positioned itself with pension funds and other wealthy institutions as an emerging force for “impact” investing to make money while making the world a better place. Appendix A: Higher Education.
In 2017, Apollo led a $ 1 billion acquisition of the company that owns the University of Phoenix. Prior to the acquisition, the for-profit college chain “came under fire for aggressive marketing practices and inferior degree programs,” Apollo said in a confidential presentation in October. However, the company said it was working to transform the school into a “trusted education provider” helping working adults achieve their dreams. Apollo said this earlier deal proved its social responsibility trustworthy as it raised money for its very first Impact Fund.
New complaints from current and former students suggest that the transformation – the good part – is still a work in progress. But in classic private equity fashion, Apollo has already done the good part.
Top private equity deals in higher Ed-related companies
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U. of Phoenix’s parent company also owned other schools, including separate programs in Germany, Mexico, and South Africa. The company sold these after the takeover and is in the process of selling a UK school. As a result of these divestments and other payments – including the return of cash the federal government requested from the school’s new owners to make a temporary deposit – Apollo expects dividends on its fund, which will soon raise the company to a total of US $ 956 million. Dollar amounts. This is evident from documents sent to investors in March. Apollo’s original cost of participating in the company was $ 634 million.
And the company is still the majority owner of a profitable company that it may one day sell or go public. Ultimately, Apollo told investors in March to expect to nearly double the money they invested in for-profit colleges.
Apollo says it had already reformed the college’s offerings and held back on paying dividends until the U. of Phoenix was in strong financial shape. In contrast to many PE transactions, the acquisition was financed without debt. “This is a great example of how new property dedicated to caring for students and providing the capital they need can be combined with new management to change the way an institution is evolving,” says Theo Kwon, an Apollo -Partner on the board of the education company.
John Sperling, a former professor at San Jose State University, founded the University of Phoenix in 1976 to provide an alternative for working adults who needed flexible schedules. It was introduced to online education early on and was aimed at many traditionally underserved students, such as: B. Members of minorities. In its prime, the school enrolled nearly half a million students. The deal relied almost entirely on federal financial support.
As a publicly traded company, the school’s market value rose to $ 10 billion in 2009. Confusingly, given its current ownership, the parent company was called Apollo Group and then Apollo Education Group Inc. At the time, Apollo was the unrelated investment in the Wall Street company, came calling, it only had 165,000 students, and its inventory was roughly 90% of its value lost.
Apollo’s partner was Vistria Group, a Chicago-based private equity firm. Marty Nesbitt, co-founder of Vistria, is a close friend of former President Barack Obama and chairman of his foundation. Tony Miller, Chief Operating Officer of Vistria at the time of the contract, was deputy secretary in the US Department of Education under Obama, whose administration led crackdowns against for-profit universities.
Apollo says it put the U. of Phoenix bad practices behind it. A decline in student loan default rates is reported, which is better than the national average for nonprofit schools and only slightly above the average for all schools. According to Apollo, the college installed new management, invested more than $ 600 million in technology to support students, and canceled 80 associate degree programs that put bad records for job placement or student income improvements had. It cut marketing spending to focus more on student retention, which Apollo says has been improved.
There is reason to be skeptical about buyout funds as higher education stewards: Based on pre-sale data from U. of Phoenix, a 2020 study by researchers at the University of California at Merced and other schools found that private equity Ownership led to falling graduation rates and higher student debt at nonprofit colleges.
More than 3,000 consumers have complained to the Federal Trade Commission about the U. of Phoenix since it was acquired in 2017. This is evident from data released under the US Freedom of Information Act. Her complaints include harassment from sales pitches and emails, lack of federal funding, and requests to enroll in unnecessary courses. According to Apollo, many of the complaints come from students who started or completed their studies before the change of ownership. Some complaints have come from military personnel and veterans who have long been a great source of students for the U. of Phoenix. “We haven’t seen anything that suggests a dramatic change in their behavior,” said Aniela Szymanski, senior director at Veterans Education Success, a research and advocacy group. “It’s a little disappointing when we talk to veterans.”
Brendon Walker, a 35-year-old US Navy veteran who has been studying at the U. of Phoenix since 2014, sees no improvement either. He says his online psychology and science bachelor’s program offers little instruction. “There’s not much to learn,” says Walker, who filed a complaint with the veterans group. “I don’t feel like I can use the information.” The U. of Phoenix points to students like King Imani, who completed his management doctorate in December. The college’s new owners have made the school more efficient, says Imani, 31. “The technology changes, the structure of the staff, everything seems more rational,” he says.
Apollo says the school doesn’t have an unusually high number of complaints for a nonprofit college. To oversee sales and other practices, the school has more than 85 compliance staff. It records calls and verifies them using artificial intelligence. “We’ve probably been audited more than any other university, and we appreciate that,” says Kwon. “This is a no-compromise area and we welcome dialogue and focus on quality.”
The Biden government has announced that it may crack down on for-profit policies again, and traditional colleges are competing with improved online offerings. It may not matter much to Apollo, given the value it has already gleaned from the deal.
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Apollo did well on its deal to acquire the University of Phoenix, largely thanks to the sale of schools overseas. But college has a troubled legacy to overcome.
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