Adtalem Wagers on Health-Care Education With Acquisition

Adtalem Global Education's plans to acquire Walden University, announced Friday, are part of an orchestrated push to become a national leader in health-care education.

Laureate Education will sell Walden University, a for-profit online institution that has for years stood out from Laureate's focus on emerging international markets, to Adtalem for $1.48 billion. The transaction is expected to close mid-2021, pending regulatory approvals by the U.S. Department of Education and Walden's accreditor, the Higher Learning Commission.

Walden is one of the largest U.S. for-profit online institutions by student enrollment, according to federal data, following the University of Phoenix and Grand Canyon University -- although Grand Canyon disputes the U.S. Department of Education's decision to label it a for-profit for federal financial aid purposes.

Walden enrolls around 52,000 students, 78 percent of whom are enrolled in health sciences programs, according to a university spokesperson. Walden offers more than 80 degree programs, mostly at the master’s level, in areas such as education, business and public administration. It also offers programs leading to health-care professions such as nursing and mental health counseling.

Adtalem, formerly known as DeVry Education Group, sold online for-profit DeVry University to a small private company in 2017. The publicly traded company has amassed a significant portfolio of health care-focused institutions in recent years, including the American University of the Caribbean School of Medicine, Ross University School of Medicine, Ross University School of Veterinary Medicine and Chamberlain University, which bills itself as running the largest nursing school in the country across 22 campus locations.

The acquisition of Walden will ensure Adtalem is “better positioned to increase the talent supply to address the rapidly growing and unmet demand for health care professionals in the U.S. and globally,” the company said in a news release. “Walden’s program offerings and technology, its strong online capabilities, and its focus on diversifying the health care workforce are complimentary with Adtalem’s existing strengths as a leading health care workforce solutions provider and long track record of providing superior outcomes for students.”

The combined institutions Adtalem will own will have 26 campuses in 15 states and four countries, the company said. They will have 6,100 faculty members and more than 90,000 students -- 34 percent of whom are Black. The company claims it will be the world's top provider of M.D.s, Ph.D.s and nursing degrees to African Americans.

For Laureate Education, the sale marks a long-signaled departure from the U.S. higher education market. The publicly traded Baltimore-based company used to be well-known for its global campus network but sold off many of its international institutions to focus on the emerging higher education markets in South and Central America. Earlier this year, the company entered into a $642.7 million agreement to sell three institutions in Australia and New Zealand to Strategic Education, the Minneapolis-based company behind Capella University and Strayer University.

Laureate Education has not been secretive about its desire to sell Walden. The company announced it was discussing a possible transaction with third parties in late 2018. In February 2019, the company said it had decided not to sell the university, stating that Laureate was best positioned to support Walden at that time. Then in January this year, Laureate indicated it was open to exploring "strategic alternatives for each of its businesses to unlock shareholder value" -- suggesting the university was again on the market.

The Walden acquisition is something Adtalem has desired for "some time," said Lisa Wardell, president and CEO of Adtalem, in an investor call on the deal last week. In the 12 months prior to June 30, Walden University and associated company Walden e-Learning had approximately $591.3 million in revenue and $146.5 million in operating income, according to a recent U.S. Securities and Exchange Commission filing.

Whether anything will change at Walden University under Adtalem’s leadership is unclear. An Adtalem spokesperson said there will be no changes before the transaction is closed, “and it’s too early to speculate beyond that time frame.” In a letter to Walden University students, Ward Ulmer, the institution’s president, said the sale “does not change anything about your educational experience at Walden.”

“Both Walden and Adtalem have made it a priority that you continue to have the same strong academic programs and experience you have come to expect from our university,” wrote Ulmer. “The transfer of ownership does not affect your financial aid or Walden’s Title IV financial aid authorization. Walden will retain its current accreditations with the Higher Learning Commission, as well as all of its current programmatic and national accreditations. There will not be any changes in your curriculum or additional time to graduation due to the change in ownership.”

Walden is expected to continue to be a stand-alone institution owned by Adtalem, according to Ulmer. It will keep the same name, and existing students will remain in their degree programs.

For Adtalem, selling DeVry and acquiring Walden is a reputational upgrade, said Trace Urdan, managing director at Tyton Partners, an investment bank and higher education consulting firm. Among for-profits, Walden has a good track record with regulators and is regarded as “one of the most spotless actors in the sector,” Urdan said.

Generally, investor interest in for-profit institutions has dwindled in recent years, but health care is “the one place where people are still interested and investing,” said Urdan. Walden has established online nursing programs and mental health programs that are not currently in Adtalem’s portfolio, he said.

“Adtalem seems to be charging deeper into health-care education and going up the value chain, which makes a lot of sense,” said Daniel Pianko, partner at University Ventures, a higher education investment firm.

Health-care education is tightly regulated by third parties and job opportunities are plentiful, he said. Some for-profit health-care education programs, particularly in nursing, are considered elite by employers. Demand for health-care professionals nationally is high, said Pianko. He said for-profit education seems to be more accepted in the U.S. for training health-care workers than it is in other fields.

“The public sector hasn’t been able to produce enough doctors and nurses for our society, especially during COVID,” Pianko said. “That makes it an area where it makes sense for for-profit institutions and private capital to operate.”

While health-care education is a relatively respectable facet of for-profit education, there is a still a risk of increased regulation if a Democratic administration is elected this November, Urdan said. In purchasing Walden University using a mixture of cash on its balance sheet and additional debt, rather than equity, Adtalem is taking a risk, he said.

“One of the truisms of managing through a hostile regulatory environment is that you want to have as much cash as possible on hand,” Urdan said. “This was the lesson of the demise of ITT and Corinthian. Those are both institutions that might still be in existence today if they hadn’t spent all their cash.”

As of June 30, Adtalem had $500.5 million in cash and cash equivalents, suggesting the company might need to borrow close to $1 billion to close the deal with Walden. The company has also agreed to pay an $88 million termination fee to Laureate if the acquisition cannot go through “as a result of the imposition by the U.S. Department of Education of certain specified restrictions” or if it fails to “consummate the transaction upon satisfaction of the closing conditions.”

That $88 million termination fee is a “pretty sizable bet” that the U.S. Department of Education won’t try to block the deal or require a letter of credit to secure continued access to federal financial aid, said Yan Cao, a fellow at the Century Foundation.

Adtalem’s acquisition of Walden is concerning to Cao. Under Laureate’s ownership, Walden was restricted from growing too quickly by regulatory controls imposed by the U.S. Department of Education.

The department imposed those controls because Laureate posted a financial responsibility composite score considered to be “in the failing range for at least the last decade,” Cao said. The regulatory controls may be lifted when the institution changes ownership, said Cao. Adtalem may have a better financial responsibility composite score than Laureate depending on the amount of debt it takes on, or the U.S. Department of Education might be convinced to consider the composite score of Walden University itself, rather than its parent company, when reviewing the transaction, said Cao.

Adtalem’s history of “failed stewardship” in managing DeVry University, an institution that “racked up student complaints of fraudulent practices,” should be of concern to regulators and Walden University stakeholders, said Cao.

DeVry in December 2016 agreed to pay $100 million to settle a lawsuit brought by the Federal Trade Commission alleging the institution misled prospective students about its graduates' job-placement rates. The university denied any wrongdoing. Earlier that year, DeVry announced student protection reforms in response to criticism of the for-profit sector, including voluntarily capping the federal financial aid the institution receives from the U.S. Department of Education.

"DeVry is in the business of democratizing access to education, helping students achieve career goals and being a part of the solution to the workforce skills gap," said Wardell, then president and CEO of DeVry Education Group, in an interview with Inside Higher Ed at the time.