Thursday, November 01, 2007

For Profits on the March

By Richard Vedder

A little not-for-profit institution of higher education, Touro College in New York, started an on-line division some time ago, apparently rather successfully, and has now announced it is selling it to a private equity group to be run as a for-profit venture. The price, $190 million, is over five times the size of Touro's endowment.

This appears to be a win-win situation. Touro gets a huge financial boost. But why would someone pay that much for a relatively modest sized on-line operation? Two reasons come to mind. First, it is up and running and has accreditation, which is costly to obtain. Second, the private buyers must feel, no doubt correctly, that with the incentives of markets at work, they can operate Touro International University more efficiently, market it more aggressively, and turn a nice little on-line operation into a rapidly growing and highly profitable entity.

There is an emerging trend for for-profits to buy up part or all of not-for-profits, which may reflect the effect of the innate superiority of market disciplined organizations in offering some forms of educational services. The data continue to show that the for-profit sector is the most rapidly growing and most innovative in American higher education. We will be speaking up more on for-profits when a new study we are working on is released, hopefully in the next month or so. Stay tuned.

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