Monday, February 09, 2009

Interview with Michael Clifford, SignificantFederation - Innovators in E-Learning Series

Welcome to an interview with Dr. Michael K. Clifford, SignificantFederation, whose company invests in post-secondary education companies. E-Learning Queen is committed to providing insights into the world of education - public, private, and not-for-profit. Insights into how education is supported are more important than ever, given the multiple shocks sustained by the global economy. E-Learning Queen welcomes reader questions and comments.

What is your name, your position, and your affiliation and what is your involvement in private equity?

Dr. Michael K. Clifford, Chairman, SignificantFederation, a principal investor in post-secondary education companies.

What is your company, and what is its mission and vision?

The link to the company is Our mission is to provide ethical business and financial strategies as principal investors in online education companies.

What do you identify as the key new trends in start-up for-profit educational institutions?

For the investment community, there is an unprecedented opportunity to collect valuable assets in a distressed market while doing something good for peopleʼs lives.

This is due in part to the financial pressure on traditional non-profit universities resulting from endowment portfolios income reduced in excess of 50 percent, major donor contributions did not come in at the end of the year at 2008 as scheduled due to market conditions, and reduced state subsidies; this, combined with an increase of enrollment demand has created the perfect storm for investors in post-secondary education.

Dr. Michael Clifford, SignificantFederation

Investors partnering with savvy, experienced executives, especially those elite online degree experts (which are few), have an unprecedented opportunity to step in and provide saving grace to the non-profit universities who are hitting the wall financially at this time.

A key trend is that these investors, like myself, will be able to maintain the traditional mission statement of an established institution by injecting best practices, especially in the area of financial accountability, enhancing faculty involvement in the operations, introducing cost-saving technologies, and providing astute marketing to properly exploit these established brands in their region.

A robust online operation is the billion dollar endowment of the future for these schools. Thanks to the regulators at the Department of Education and the accrediting agencies, the level of quality educational degrees has continued to increase while these regulatory bodies have made access a priority in their support of the institutions going forward.

How do private, for-profit institutions assure students of a high-quality, flexible curriculum that includes general education as well as their major area of study?

Market-driven institutions, whether they be for profit or non-profit, are governed by regulators to ensure high quality flexible curriculum that includes general education and relevant real world areas of study. However, the Academy needs to review the traditional Gen Ed that requires two or more years of a studentʼs time while adding a burdensome 50 percent to the cost of a relevant degree. Faculty need to understand that in this new economy they must be focused on cutting costs to the student and their family and all the other funding contributors such as the Department of Education, corporate America, and grandparents, in order to get the student through to a degree and on a career path for all parties involved.

Have recent changes in the way online learners interact changed anything about private equity funding for for-profit colleges and universities? (social networking, twitter, wikis, multimedia, voice boards, etc.)

Everybodyʼs talking about social networking and ways to generate low cost leads. I donʼt think weʼre seeing much of an impact in that area yet, but we will. I believe private equity firms are just now waking up to the realization that market-driven opportunities in a non-profit and for profit education industry are unprecedented opportunities for diverse portfolio investments.

When one looks at a university, one actually sees a city with various investment opportunities. A university has real estate transactions, software and technology, curriculum design, human resource and career development opportunities, marketing and advertising, food services -- a whole gamut of industries that are spin-offs from what the university pays for to deliver the final services to a student.

Please list and describe a few key benefits of starting new institutions, or expanding using private equity funds. Do you have any case studies?

The real value creation for private equity investors is the strategic alliance or conversion of non-profit assets that have hundreds of millions of dollars invested in them over many, many years to unleash the value through strict discipline on the residential programs, combined with robust niche marketing for online degree programs.

I cannot find a sector in the investment community that is more robust. Combine this with the fact that weʼre helping people live better lives, it makes it a very meaningful investment opportunity.

Case in point, Grand Canyon University, which when we formed the strategic alliance with the non-profit board, was approximately $40 million in debt, had fewer than 1,000 students on the campus, dormitories with no air conditioning in Phoenix, Arizona, a swimming pool filled in with dirt, 22 lawsuits that the institution was bound to lose to vendors, and completely out of cash. Our group was the catalyst to bring in the money, the management, and the marketing to unleash the value of this 57 year-old Southern Baptist University based in Phoenix , Arizona . The result was a public offering November 20, 2008 that broke the longest dry spell in 33 years of IPOs. LOPE is rated the No. 1 IPO in 2008, with the stock up over 70 percent as of today.

Another case in point is the remarkable story of Bridgepoint Education, which filed its S1 prior to Christmas Eve. Bridgepoint Education began with ten employees in San Diego three years ago, now employing 1,500. Bridgepoint Education promises to be the most stunning IPO in 2009.

I am humbled that two companies I founded might indeed represent the best-performing IPOs in 2008-2009 back-to-back. This is a testimony to the need for working adults to go back to school to retool to compete in the global market during what some are calling the second Great Depression. During the last Great Depression, the government had people pick up shovels and build bridges. During this economic downturn, we need to get people back to school to learn so we as a nation can compete.

Please describe upcoming activities.

For the investment community, there are several conferences throughout the year that I would recommend, including the Credit Suisse conference, the BMO conference, Signal Hill conference and others. For the private equity investor, they are truly missing the boat by not learning about this space and the long legs it has into the next ten years.

Optional question: What do you think the stock market will do in the next 18 months? How about the price of oil? Do you think that "contango" situations in commodities will affect pricing -- obscuring the fundamentals (yet again)?

Nobody can predict the stock market, especially in today's economy. Personally, I do not believe the traditional fundamentals can be counted on any more because of the global financial wheeling and dealing that is taking place. It is my belief that until post-secondary education institutions begin to turn out business MBA students who have a strong moral compass and can make ethical decisions on Wall Street, our financial markets will continue to spiral down in uncertainty. The No. 1 comment I hear from CEOs of the Fortune 1000 is the fact that they cannot hire MBA students in business that have a strong principled decision-making process of what is right and what is wrong because they have been taught that greed is No. 1 and beating the competition is most important.

We have tried to institute in all of our institutions a strong charitable component of service by giving of our time, talents and treasures back to the community in which we serve. It is my feeling that until profitable companies get serious about giving back to our society we will continue to have this type of financial turmoil in the markets.

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