In another move to clean up its balance sheet, Sylvan Learning Systems Inc. said yesterday that it will sell its money-losing Aspect English-instruction subsidiary for $22 million - one-third of what it paid for it in 1998 - to an unnamed group backed by investment firm Warburg Pincus.
Aspect, which Sylvan bought for $65 million from its San Francisco founders in 1998, has been a drag on Sylvan's earnings for the past two quarters. Its revenue for the first half of 2000 was $20 million, a $5.2 million drop from the first half of 1999.
The program has been expensive to run, as it involves bringing students from 90 countries into American, British and Australian schools for English immersion classes. Sylvan wanted to focus on other initiatives, said Douglas L. Becker, Sylvan's chief executive officer.
"Think of it as a travel business," Becker said. "Had we been a travel company, it would have been a fabulous fit."
Though Becker declined to give specifics about Aspect's new owners, he said the Warburg-backed team has experience in the study-travel industry. Aspect has about 20 employees in Baltimore, and they will either have the opportunity to remain with Aspect or transfer to other divisions of Sylvan, Becker said. He wasn't sure where the Warburg team would locate Aspect.
The Aspect acquisition proved a costly lesson in English-teaching strategies for Sylvan. The company bought Aspect to complement its Wall Street Institute, which aims to teach working adults English on a part-time basis. Wall Street Institute, unlike Aspect, involves no travel abroad; its classes are held at centers across Europe and Latin America.
Wall Street Institute, which Sylvan bought in 1997, was growing "incredibly fast," Becker said, while Aspect had become a drain.
"We felt we couldn't focus on both ends of the market," Becker said.
Deutsche Banc Alex. Brown analyst Peter Appert gives Sylvan credit for recognizing that it was time to part with Aspect. "They bought it. It didn't work out. They're getting rid of it," he said.
That Sylvan is selling Aspect for one-third of what it paid in 1998 isn't troubling to Appert, who said a fair price is difficult to determine because the business has been losing money.
Analysts had been expecting the Aspect sale for some time, and Appert considered it further evidence of "the new Sylvan" - an education-services company reinventing itself for the e-learning age.
To that end, the company established Sylvan Ventures, a business incubator to cultivate Internet education companies. Sylvan bankrolled $300 million for the fund, a portion of the proceeds from the sale of its Prometric testing business, and raised $200 million more. Sylvan Ventures now has ownership stakes in eight Internet education companies.
Shares of Sylvan were little-changed yesterday, closing at $14.5625, down 18.75 cents.