Matthew Staver/Bloomberg NewsJonathan Grayer, former chief executive of Kaplan Inc.
Jonathan N. Grayer, the former chief executive of the education company Kaplan Inc., formed an investment partnership with the private equity firm Kohlberg Kravis Roberts Company in early 2010. Now, after looking at 350 companies over the last year and a half, they have done their first deal.
Their venture, named Weld North, has acquired Education2020, an education software company based in Scottsdale, Ariz. The financial terms of the deal were not disclosed, but people briefed on the transaction said the purchase price was about $50 million.
Despite the deal’s small size, it underscores the keen interest of private equity firms in for-profit education.
Education2020, which is known as E2020, provides online courses across 43 states in subjects ranging from algebra to earth science to “A Midsummer Night’s Dream.”
Its products focus on so-called credit recovery, the fastest-growing segment of the online education sector. The credit recovery market serves students who have fallen behind and need to take additional courses to graduate.
These self-paced online classrooms provide a solution for budget-constrained schools that are under pressure to raise their graduation rates but cannot afford to hold additional classes.
“Credit recovery helps students who have gotten behind get back on track,” said Susan Patrick, president of the International Association for K-12 Online Learning, a nonprofit advocacy group based in Vienna, Va. ”It also gives the school a more cost-effective solution to helping students get to graduation.”
In an interview, Mr. Grayer said that Weld North would look to use E2020’s credit recovery platform to expand into the core market for online education. An estimated one million students in kindergarten through 12th grade took an online course during the 2007-8 school year, up 47 percent from the previous year, according to the Sloan Consortium, another online-education advocacy group.
“The cost pressures of our current education system are requiring an evolution to a more digital learning place,” Mr. Grayer said. “We plan to develop products that serve that need.”
Critics of online education question the efficacy of virtual coursework and argue that online classes do not compare to learning from a teacher in a classroom. In 2009, the United States Department of Education said that policy makers “lack scientific evidence of the effectiveness” of online classes.
Mr. Grayer acknowledges the quality of online coursework is an important issue and that E2020, as it continues to expand its product offerings, should be held to the highest standards.
Among the largest players in the credit recovery area is NovaNet, a subsidiary of Pearson, the British media company. Another company, Plato Learning, was recently purchased by Thoma Bravo, a private equity firm, for $143 million.
Private equity firms have been very active in the for-profit education sector. Earlier this month Providence Equity Partners agreed to pay about $1.6 billion for Blackboard, a maker of course management software for universities.
Mr. Grayer, 46, left Kaplan, a unit of The Washington Post Company, after 17 years. He is credited with transforming Kaplan from a money-losing test-prep to a for-profit education giant that last year generated 62 percent of The Washington Post Company’s total sales.
Sari Factor, a Weld North managing director who ran the K-12 division at Kaplan under Mr. Grayer, will be E2020’s chief.
K.K.R. has backed Weld North — which is named after Mr. Grayer’s freshman dormitory at Harvard College — with a commitment of several hundred million dollars.
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