Spring Education Group – Regional Drivers in For-profit
Secondary Education – 16 July 2021
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Specialist:
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Lauren Starnes (LS)
Former Senior Director, Early Childhood Education at Nobel Learning Communities Inc
Agenda:
1. Typical school structures and drivers across regions
2. Operating dynamics of physical vs online enrolment
3. Cost pressures impacting enrolment trends
4. Spring Education Group growth outlook
Contents
Q: Could you give an overview of the for-profit market for preschool and K-12? How has this evolved
throughout your time in the industry?
3
Q: How do you think the balance across the first three tiers within preschool has shifted, pre-coronavirus
and during the pandemic? Have you noted higher incomes, more people able to afford a mid-level school,
weaning off vouchers or perhaps a shift from mid-level to a top-tier school? That can apply for preschool and
4
K-12.
Q: Could you discuss any fundamental structural advantages that private schools offer vs public schools
when making decisions such as mask mandates? It seems that strong private school players in the K-12
market could take advantage of public institutions’ potential slowness and inability to be agile.
6
Q: When considering how Spring Education is structured between K-12 and early childhood, throughout the
different tiers, how would you assess the strength of that mix? Could the company be more relevant in the
tier 2 K-12 or should it focus more attention in early childhood, perhaps top tier or mid-level? What’s your
assessment of the ideal tier mix as a for-profit player in this market?
7
Q: Where would you say Spring Education’s greatest opportunity strategically is for its talent pool and
resource commitment? Where would be easiest to split the business and focus on?
8
Q: If Spring Education focused only on the K-12 segment, what would it be up against in vying for market
share? Could you discuss the attributes needed to consistently take market share within this competitive
landscape?
8
Q: What are your thoughts on Spring Education’s strategy of buying everything it can find and figuring it out
later? Do you think it was too aggressive acquiring so many schools, and now when it has an opportunity to
take advantage of other schools’ weaknesses and potentially acquire them, it might be too over-levered to
take on more debt to finance those acquisitions?
9
Q: Could you expand on the leading players in the premium K-12 market? What would you say these players
10
are doing to take market share from Spring Education?
Q: How did Spring Education choose its location? You mentioned searching for affluent suburban
neighbourhoods, but every day a new neighbourhood is popping up, around the housing. How did Spring
Education or any other major player decide which US state or county to operate in, given the different state
regulations for education?
10
Q: We discussed facilities and continuing to invest in them to market your product as a more premium
experience for students. Could you discuss how the public sector has responded to gains in the for-profit
market, in K-12 or other segments? Would you say public schools have used their funding to reinvest and
make themselves more competitive to bring students back into the district?
10
Q: Could you expand on Spring Education’s acquisition strategy? You mentioned a lack of rebranding and a
potential identity crisis. What does the company do to improve the schools it buys? Is it just buying schools
for more exposure and revenues, or actually implementing best practice throughout the facilities?
11
Q: Is the demand in for-profit early childhood and K-12 sustainable? What’s your demand outlook for the
next 1-2 years?
12
Spring Education Group – Regional Drivers in For-profit
Secondary Education
Transcription begins at 00:00:08 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview entitled Spring Education Group – Regional Drivers in For-
profit Secondary Education. I’m Nyree Hinton, and I will be facilitating today’s Interview with Lauren Starnes,
former Senior Director, Early Childhood Education at Nobel Learning Communities Inc.
Lauren, before we get started with today’s Interview, please state I agree or I disagree to the following
statement: You understand the definition of material non-public information and agree not to disclose any
such information or any other information which is confidential during this Interview.
LS: I agree.
NH: Could you give an overview of your background and various roles you’ve held in the industry?
LS: I’ll be glad to. I am an expert in the field of early childhood education. I hold two doctorates, one in child
development and one in educational leadership. I taught for while at North Carolina State University in their
elementary education and early childhood programme, have run franchised childcare centres myself, was part
of a corporate childcare company, Nobel Learning, which is now Spring Education Group. While there, I ran
elementary schools for them at the local level, preschools for them and then worked through the ranks of the
education department, ultimately leading the education department of Nobel Learning Communities. I am the
sole author of Links To Learning, which is the preschool curriculum still in use by Spring Education Group
today. I currently work for Primrose School Franchising Company, as the Vice President of Early Child
Education, leading the education team for Primrose. Primrose is a franchised preschool and would not be in
direct competition with Spring Education Group.
[00:02:03]
Q: Could you give an overview of the for-profit market for preschool and K-12? How has this evolved
throughout your time in the industry?
LS: Sure, so I’ll start with preschool. The for-profit childcare space, private childcare owned by corporations
and franchised companies accounts for somewhere in the range of 10-15% of childcare in America. The
majority of childcare of America, they are mom-and-pop, individual, family-owned daycare centres in small
suburban communities or faith-based childcare. Over the 20 years that I have worked in formalised preschool
and childcare, early childhood, we have seen the for-profit sector of childcare continue to gain market share,
and really what that means is large corporately held childcare companies and large franchise childcare
companies are continuing to expand their blueprint. Within the for-profit space of childcare, early childhood
education, you can see schools that are delineated into three tiers. At the lowest tier, we call these value
childcare centres. Here is where you’d see, KinderCare is a perfect example, or Childcare Network is probably
a better example. Childcare Network is probably the best example, and these are for-profit childcare centres
that receive the majority of their pay by voucher, so the majority of their families fall within whatever the state
defines as need, so therefore the state provides a voucher to pay for a portion of childcare, and for these
centres the majority of their pay is voucher pay. Usually, it’s 75% or even greater.
Then you have the mid-level space. These are corporately owned childcare centres, some franchise childcare
centres. This is where Spring Education Group would fall in terms of their preschool. These are predominantly
Private and confidential 3
private pay for-profit childcare centres but the tuition is moderate. It’s certainly more expensive than the value
brand, but it’s less expensive than the premium brand. Here you see childcare centres that are in usually
white-collar suburban communities, standalone physical facilities. There is a curriculum that is in place. There
are certainly child outcomes that are in place, but the facilities tend to not be at the same level of premium
feature as you might see in the higher-tier space. The ratio of teachers to children is always better than what’s
required by the state, meaning smaller class sizes, but not quite as small as what you would see in the
premium space.
In the premium space, you see childcare centres that are charging in the top 1% or above market in their local
community. They tend to charge anywhere from 4% to 10% higher tuition rate than that mid-level brand. Here
is where you would see Primrose. It’s also where you’d see the majority of The Goddard Schools and the fair
majority of the Bright Horizons schools. In this space again, you’d see a top-tier curriculum. The big difference
is that facilities are newer and better-maintained. There’s a different visual appeal. They tend to have
additional features such as a water feature on the playground or things of that sort, but the primary
differentiator is the classes are smaller. Teachers tend to have higher education levels and there is a lower ratio
of adults to children.
When we talk about the for-profit K-12 space, it’s different. In the for-profit K-12 space, the biggest competitor
is the public school, and so, unfortunately, the for-profit K-12 space, these schools need to be built in more
affluent communities where families have the income to afford private education. However, in building private
schools in affluent communities, the public schools also tend to be well-funded. There is a constant push-pull
of competing with the public schools. You tend to see two tiers within the for-profit K-12 space, the moderate
and the premium. Spring Education Group operates both. They operate in both tiers of private K-12 education.
In the moderate space you see tuition that generally ranges somewhere in the USD 8,000 to USD 12,000 a
year rate. You see a curriculum that has proven outcomes. Parents want to know and be, and have validation
that what they’re paying for is going to generate a result that that parent feels like meets and/or exceeds what
the child would be getting for free in the public school. Parents expect a smaller class size, parents expect
uniforms and there tends to be some kind of thematic attraction. What I mean by thematic attraction is the
school touts itself as being Stem-based, really focusing on science, technology, engineering and math, or the
school touts itself as being arts-focused or they might consider themselves to be an immersion school with a
language, where the children are receiving education in both Spanish and English, most commonly the
combination seen in America.
Then you have the premium for-profit K-12 space, and tuition for these schools can range anywhere from USD
12,000 to USD 50,000 annually. A lot of that depends upon the market in which they reside and the degree of
prestige accomplished by the school. What accomplishes prestige for a private K-12 school would be education
level of the leadership, generally led by someone with a doctorate, so you have Dr So-and-so as the Principal or
Head of School, teachers that tend to have majority master’s degrees, whereas the moderate tends to be
bachelor’s-degree teachers. Again, higher-tier facilities. These would typically be K-12 schools that have a large
athletic complex, perhaps a theatre, perhaps on-site a lap pool or competitive swimming pool and they also
tend to offer thematic approaches, but parents have choice. It might be a school where the parent can elect to
have the child in immersion classrooms or not. The parent can elect to have the child take extension courses in
business or in engineering or in coding or not. There’s a greater degree of parental choice given. Uniforms are
mandated, and they are strict and they also see that these schools tend to have very strong proven outcomes,
that they truly are K-12. These are the schools that can demonstrate high rates of college acceptance,
particularly in the top-tier universities, etc.
[00:09:31]
Q: How do you think the balance across the first three tiers within preschool has shifted, pre-coronavirus and
during the pandemic? Have you noted higher incomes, more people able to afford a mid-level school, weaning
off vouchers or perhaps a shift from mid-level to a top-tier school? That can apply for preschool and K-12.
LS: Sure, so let’s start with pre-COVID, we’ll start with early childhood, early childhood space. Pre-COVID,
the value brand space was relatively stable, and what I mean by that is families that qualify for vouchers tend
Private and confidential 4
to need them, tend to use them, and therefore they have to attend the childcare centre that accepts them, so it
tends to be pretty relatively stable. Pre-COVID we saw a lot of growth in that mid-level space. The economy
was strong, most of the families are dual income or stronger single income families, and as families place out
of the voucher need and value brand, they want more. They want their child to have higher-quality education,
and so we saw that mid-level space really growing extensively, where families were able to push themselves
out of the value brand and really wanted something more. We saw new franchises emerge, The Learning
Experience, TLE, is a great example of that. We saw some mid-level franchise expansion. Kids ’R’ Kids is a
great example of that. We saw greater market share by corporately owned childcare centres. Spring Education
Group is a good example of that. That space was growing at a pretty high rate. The premium space always
grows at a rate of about 1-3% annually, and that was pretty steady pre-COVID.
Obviously, during COVID itself, the entire industry was decimated. Families were out of work, parents were at
home, people were sheltering in place and, for a short time, depending upon the state, childcare centres were
closed. Childcare centres were then deemed essential, began to reopen, but they opened primarily for first
responders. First responders benefited. The mid-level and the premium space, mid-level usually the nurses
and premium space usually the surgeons and attorneys, and so we saw some recovery there. The value brand
space was relatively shut down for a considerable period of time. As we’ve moved through the pandemic, one
interesting pattern has emerged. With the PPP funding and the CARES grant funding that were available for
independently owned and operated small businesses, a lot of the premium childcare providers were able to
secure that. For example, within the Primrose Network, and this is public information, I’m comfortable
sharing this, the majority of Primrose Schools, all of them, are independently owned and operated. Of those
Primrose Schools that applied for that grant funding, 99.8% secured it. Therefore, we saw Primrose Schools’
premium providers, Goddard Schools’ premium providers, independently owned and operated, able to secure
federal funding, remain open and continue to pay their teachers.
The large corporate schools, the Bright Horizons in the premium space, the Spring Education Group in the
mid-level space are corporately owned and operated. They have too many employees to qualify for the federal
funding, so therefore they had to furlough the majority of their employees and had to go into shutdown from
periods of 30 to upwards of 120 days of complete closure, flatline expense. Actually, red line expense because
you’re still paying for the building. As we’ve moved through the pandemic, the mid-level space is continuing to
recover. At the industry level right now, they’re showing about a 70-78% utilisation from where they were pre-
COVID to today. Projects are that that will continue to grow at a pretty steep incline as we move into back-to-
school K-12s, move into August and September.
It is actually the premium childcare that has grown at the greatest rate. The majority of premium childcare
centres are operating somewhere in 90% up to upwards to 105% of where they were pre-COVID, and part of
that has to do with the fact of being able to secure federal funding. Because those schools were able to receive
federal grant funding, they did not have to furlough teachers, so, therefore, as families had sought to return to
childcare, those schools were able to reopen classrooms at a faster rate. The early childhood space is plagued
by teacher shortages, and so having to furlough teachers meant that many of those men and women found
employment elsewhere. As the unemployment benefits have been maintained, there’s an increasing
competition wherein many former childcare employees have found that they are more gainfully employed
staying unemployed or securing jobs elsewhere such as driving and delivering for Instacart, working at Target
or working at Starbucks. Those that had to furlough have seen a significant decrease in their ability to recover.
In fact, if you want to look at an interesting case study, Bright Horizons posted their largest decline ever in Q1
and Q2 of this year, astronomical declines, and they’re closing numerous schools. Spring Education Group
also closed approximately 40 schools at the end of last year. With whatever was touted in the media, actually
nonetheless, it’s consolidation and it was consolidation because of financial impact.
As far as the private K-12 space, the private K-12 space actually grew. Before the pandemic, it was flat. Private
K-12 space tends to be flat. Families in America tend to seek one of two options, private elementary school and
then putting the child into public middle and high school in preparation for college, or the inverse. Public
elementary and middle school, private high school looking ahead towards college. The private K-12 space
tends to be relatively a flat space. However, during COVID, private K-12 in America showed some of the
highest utilisation rates ever to date, and the reason being is public schools were closed, families were
frustrated, private schools reopened. Families that had any expendable income and were able to do so, many
of which secured private education for their child for the 2020-21 academic year and based upon their degree
Private and confidential 5
of satisfaction will remain enrolled in that private school as many public schools have still not released mask
mandates for the coming school year, scheduling decisions for the coming school year and the rate or risk of
closure again if COVID is to resurface or the variant Delta is to resurface, and so parents are anxious. Private
schools actually for the first time ever, the majority of private schools in America had a wait list for the 2020-
21 academic year, and even if they lose some families back to private1 [sic] ed, can likely work their way
through those wait lists to again show some of the highest utilisation to date.
[00:17:55]
Q: Could you discuss any fundamental structural advantages that private schools offer vs public schools when
making decisions such as mask mandates? It seems that strong private school players in the K-12 market could
take advantage of public institutions’ potential slowness and inability to be agile.
LS: Sure. I’m happy to elaborate. A public school is at the discretion of a district, so that can be anywhere
from 10 to upwards of 80 schools under the same jurisdiction, and we know that education is at the discretion
of the state, with the exception of the State of Texas, at the discretion of the state, so changes take a long time.
Changes are not made at the school level at public ed, they’re made at the district level and generally changes
at the district level are made at the state level. It just takes a lot of time to do that. Public education has to err
on the side of caution, meaning if it is a county that covers 40 square miles and there is bad weather and it’s
only going to impact one school within that, they cannot make a decision on behalf of one of the entire district,
so they have to close the whole district because it’s icy for one. What I mean by that is kind of metaphorically
what’s in the best interest of one school is in the best interest of all and they have to err on the side of caution.
At the private school level, you’re talking about a school that’s solely operating on the best interest of one
locale. Decisions such as masks and the wearing of masks, private schools are not subjected to public school
standards, so the public school district may say masks are mandated for all students regardless of age. The
private school has the discretion to say, “Not here.” Many private schools did just that. They negated the mask
mandate. As the CDC released new guidelines, they were able to make more agile decisions and act quicker.
The bigger impact however for families was not about the masks. The bigger impact was face-to-face
instruction, so across America every single school district in America went to some degree of virtual education,
online education, which for young children, pre-literate children, kindergarten, first grade, even second grade
children, was particularly challenging because it requires not only some technology ability but also the ability
to read, to read where I can actually click onto what and look at the directions from my teacher and click the
volume button or camera on or camera off. Working families were having to actually sit alongside their four-,
five-, six-, seven-, eight-year-old child to provide guidance to help them not only navigate the technology but
read the instruction. We also know that young children in particular learn best in hands-on instruction. Even
if a teacher is on-screen, demonstrating how to do patterning, what’s not there is the ability to actually touch
and manipulate hands-on concrete materials, so families became increasingly frustrated.
You saw a large population of early elementary families flock to private school because private school was
reopened and there was a face-to-face element. Then you have the children that have some degree of learning
challenge or learning disability. Online instruction for many children that already have learning challenges
was particularly complex and difficult and created a great deal of frustration for the child and therefore a great
deal of frustration for the parent. You saw a large population of families with a special needs child or a child
with a learning disability flocking towards private ed. The other large population were gifted children, children
that are highly capable learners, that learn at a very quick rate. These children were sitting in online
instruction and were completely bored out of their minds because the teacher has to teach in one way, and one
way only, because she’s on camera and trying to meet the needs of anywhere from 15 to 40 children at a clip,
and so these parents also flocked to private ed.
Lastly, you had the families that themselves were just generally frustrated. They saw teachers that were ill-
prepared to teach online, which is not the fault of the teacher. It’s not taught in teacher prep programmes. I
know that because I taught at a tier 1 university. We don’t teach teachers how to teach online, or we didn’t at
1 Specialist was referring to public education.
Private and confidential 6
the time. You saw teachers that didn’t know how to navigate the technology themselves, who had bandwidth
issues, or teachers who were trying to meet the needs of their own children in the home while trying to teach
and this created really complex and sub-par learning environments. Families wanted more education for their
child as well.
Lastly, you had the camp of parents who needed childcare so who saw the opportunity to put their child in
face-to-face private education as a way to also have childcare that they could also work. The private school
again can make the decision in the best interests of the child, they’re able to accommodate needs of individual
children, generally more agile to meet the needs of children with learning challenges, even if that means
gaining some outside support, but the biggest thing is they were able reopen. They were able to recreate
standards, which may have been similar to private2 [sic] school where parents may not have been allowed to
enter the school, masks may have been worn, but what was most important, school was reopened. The
majority of private schools did not close during COVID, so when the public schools closed and those children
all went remote, we saw very little impact in private ed for the 2019-20 school year because the schools closed
in February and March, the school year was nearly over. As schools did not reopen in August and September,
families panicked and that’s when we saw near double the rates of attendance in private ed for the 2020-21
academic year.
[00:24:34]
Q: When considering how Spring Education is structured between K-12 and early childhood, throughout the
different tiers, how would you assess the strength of that mix? Could the company be more relevant in the tier
2 K-12 or should it focus more attention in early childhood, perhaps top tier or mid-level? What’s your
assessment of the ideal tier mix as a for-profit player in this market?
LS: Absolutely. There are two camps. Spring Education at its core operates under the idea and the guise that
operating in a quality preschool will lead the families that then seek quality K-12 is actually not the case. The
conversion rate from private preschool to private K-12 school is no different than the rate of children who have
been at home to private ed or children that have been in private preschool to public ed. It’s really a false
impression understanding. If you look at where there is the most opportunity for income, there are two camps
of thought. A private K-12 school that is operating efficiently at near max capacity will always generate more
money than an early childhood centre. Why? Because the ratios are different. You’re still looking at one
teacher to 15-30 children where in a preschool it might be one teacher to 10 children or one teacher to five
children. The ratio makes K-12 much more profitable.
In an ideal world, particularly in this economy, Spring Education should be looking to move their mid-level K-
12 schools into the premium space, raising tuition because they can, the demand is much higher but they
would have to do that with an investment back into the facility because the facility has to reflect a premium
provision, meaning that when families are writing a cheque for USD 30,000 they’re not going to accept that
the classroom walls haven’t been painted or that there are cracks in the parking lot of the school or that the
pool is non-operational because it wasn’t properly resurfaced. That would not fly. The most financially savvy
decision would be to focus exclusively on the K-12 space, to segment off and sell the early childhood sector and
use that profit generated from the sale of the early childhood sector to reinvest in the mid-level K-12 schools,
moving them all to premium. Because the other reality is, as families of K-12 students saw their child at home,
many families became much more savvy about the quality of education overall and a lot of families have
expressed a lot of discontent at not only the poor instruction virtually but also the sub-par standards of
academic expectations for the child, such that we see a lot of parents seeking private K-12 education for quality
reasons as well.
The other line of thought would be to do the inverse. I’m going to give you two scenarios, and that would be,
again, to focus on one sector only. That would be for Spring Education Group to sell the K-12 sector and use
that money to reinvest into the early childhood. Again, that’s going to mean substantial investment into
facilities, to really increase the quality, and the look, and the maintenance of the buildings. It’s also going to
2 Specialist was referring to public schools.
Private and confidential 7
mean reinvesting in the recruitment of higher-educated staff to really drive up the rate of academic proof of
delivery, if you will, for young children. Perhaps, even, considering adding private kindergartens in the
majority of the schools to then create a premium childcare offering that is infant through private kindergarten,
which would generate extremely high rates of margin as well. The rates of return of being on the mid-level
space vs the premium space are more than threefold, so it’s a lot of investment in facilities to get there, a lot of
investment in talent to get there, but the profit return is worthwhile to do so. The one enigma in Spring
Education Group’s portfolio is Laurel Springs, the online K-12 school. Laurel Springs accounts for about 20%
of the revenue stream of the entire K-12 sector, so one online school accounts for about 20% of the otherwise
about 65 brick-and-mortar K-12 schools. That’s huge, and that’s probably been the reason why Spring has
been a little hesitant to sell off the K-12 sector.
If there’s a firm commitment to maintain Laurel Springs in elite, truly elite, online K-12 sector, then the
decision should be to sell off the early childhood. It’s almost impossible to operate in both sides of the
business. Spring Education has touted itself as being exclusive for doing so, but the reality is they don’t do
either well. I think it just goes to the fact that in any industry, you have to have some degree of specialisation,
and the early childhood education specialisation does not map onto K-12 specialisation. They’re vastly
different. Yes, they both are education fields, but they’re as dissimilar as being in the entertainment business
and the hospitality business. They’re, just, totally different, and so my recommendation from a financial
perspective, and from a quality perspective, would be to choose one and do it really, really well.
[00:30:55]
Q: Where would you say Spring Education’s greatest opportunity strategically is for its talent pool and
resource commitment? Where would be easiest to split the business and focus on?
LS: I think, with the buyout, when Primavera bought Nobel from Leeds Equity, their holding in America was
Stratford Schools, which are private K-12 schools. I think looking at the ownership of the company currently,
and the leadership that’s been positioned within that, the focus should be K-12. Really, Primavera Stratford
Schools is a K-12 operator, it just so happened that by buying Nobel, they inherited preschools. Nobel has
continually shrunk their preschool offering. Like I said, they closed 40 schools at the end of December. I
believe 32 of those were preschools. Right now, there’s immense consolidation occurring within the early
childhood space, and the big players, the Learning Care Groups and the Bright Horizons of the world, in
particular, I would even say, to some extent, the franchises, maybe, maybe a Primrose or Goddard, but
probably not, probably the big corporate holds, Learning Care Group and Bright Horizons, would be very
eager to gain the market share of the facilities that are currently held by Spring Education Group.
The enigma, or the challenge of what’s going to happen with that is that Spring Education Group largely does
not own their facilities, they lease them. We’re talking about actually selling leaseholds, which is not unheard
of but certainly a little bit more dynamic. That’s going to be a challenge on either side, but I think if Spring
were looking to liquidate and become more financially strong, they would have a much easier time selling the
early childhood sector off, and reinvesting in the K-12 space. If you look at the long-term trajectory of
education, I think it’s a wiser investment to invest in private K-12 at this point.
[00:33:25]
Q: If Spring Education focused only on the K-12 segment, what would it be up against in vying for market
share? Could you discuss the attributes needed to consistently take market share within this competitive
landscape?
LS: I would say that the market share challenges are consistent whether it’s K-12 or early childhood, but let’s
talk K-12. It varies community to community. It really requires a strong facility, well-positioned, in a dual-
income professional community of parents, making a combined income that’s well into the six figures. When
positioned like that, there’s going to be an immediate ability to attract market share. One thing that’s
Private and confidential 8
happened in pandemic, the largest competitor for private K-12 before was private faith-based K-12. It was the
private K-12 Catholic school, or the private K-12 Episcopal school or the private K-12 Judaic school. Most of
those have closed during the pandemic. They would have possibly had access to federal funding, but because
they are religious they were excluded from some of the funding stream opportunities, and so, many of those
have closed. Those were families who had their child in private school, and now are thinking, “Well, what do I
do now?” They’re looking for some kind of option. There really is not a large, consistent private K-12 operator
of note beyond Spring Education Group. Even with Spring’s portfolio of 60-ish, 70 maybe, K-12 schools, that’s
a pretty large operator within the space. There are many other large, independently owned private K-12
schools that are looking to liquidate because of the impact of COVID.
That’s largely how Spring Education Group has come to be what they are now anyway. It’s through
acquisitions and mergers, the purchase of The Sagemont School, for example, in western Florida, the purchase
of The Honor Roll School in Sugar Land, Texas. That’s largely how Spring came to be, was actually seeking out
and purchasing independently owned premium K-12 schools, learning from them and then adapting some of
those practices into their mid-level and moderate private K-12 schools. That is at a huge opportunity now, as
well, because many of those independently owned private K-12 schools could have secured federal grant
funding but they didn’t act fast enough. They didn’t have the network to notify them to do so. By the time they
filed for funding, the funding was dry, and so those schools did have a similar impact to the corporates, had to
furlough quite a bit and now in recovery mode. They’ve got the facilities to be in the premium space, they’ve
got the name recognition in the right community, but the ownership has been shell-shocked enough that
they’re ready to get out. It’s really a prime time for Spring to be looking community to community at some of
these more elite, upscale, suburban communities, at independently owned schools and seeking to secure them.
Also, looking to secure the facilities of closed down, defunct, faith-based K-12 schools. The standalone K-12
Catholic school, for example, that announced its closure this year, but it’s a great facility sitting unoperated.
The need and demand is still there. What’s now missing is an operator.
[00:37:19]
Q: What are your thoughts on Spring Education’s strategy of buying everything it can find and figuring it out
later? Do you think it was too aggressive acquiring so many schools, and now when it has an opportunity to
take advantage of other schools’ weaknesses and potentially acquire them, it might be too over-levered to take
on more debt to finance those acquisitions?
LS: Sure. I would say Spring has always been over-leveraged. Even when they were at Nobel, they were over-
leveraged. They would buy, buy, buy, become cash-strapped, and would actually freeze expenditures at the
existing schools. When you freeze expenditures at existing schools, you see facilities deteriorate at an
astronomically fast rate. I would say when I joined Nobel Learning in 2007, they were tottering on the line of
being a premium. The company was right on the line of premium vs mid-level. Part of the reason why I altered
the curriculum that was in place was really to secure them a premium place, and they operated there for a
short time. They then began to buy, buy, buy, primarily in the K-12 sector, and became exceptionally cash-
strapped once again, not only freezing wages for every single employee in the company but freezing facility
maintenance for every single facility in the company. In a pre-school that takes a beating from 140 young
children every single day and their families, to not invest in a facility for six months, one year, let alone three
years, you saw facilities that became, sharply, what they were, pretty much securing Nobel a space in the
moderate, at that point. They completely lost any premium holding, despite having the pieces in place to do so.
As far as buy, buy, buy, there has to be a greater strategy, and I think part of the issue that Nobel, now Spring,
has had over the years, is an identity crisis.
It really has to be, “What are you? Are you a strong, solid, mid-level early childhood offering? That’s okay if
you are, but if you are, then be that. Are you a premium early childhood offering? That’s great if you are, then
work hard and be that. Are you a mid-level K-12 offering? Are you a premium K-12 offering? Are you an online
K-12 offering?” You really can’t be all five. The other thing that Spring has really struggled with is that they
bought, bought, bought, they have not re-branded. The company has, you know, 40-plus brands under its
umbrella. There is zero name recognition. I understand the legal implications of having more than one brand,
there’s certainly some argument to be had there, so maybe you have two brands. When you have 40 brands,
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parents don’t know who you are or what you are. Compare that to a Bright Horizons, for example, parents
know what Bright Horizons is because every single Bright Horizons is called Bright Horizons. Compare that to
a Primrose, parents know what Primrose is. It’s not nearly as big as Bright Horizons, but every single Primrose
is called Primrose, and they look very similar. I think there’s an identity crisis within Spring Education Group.
They need to figure out where they want to operate and focus all time and attention there. Acquisition?
Absolutely. Whether it’s early childhood or K-12 acquisition, it’s the right time to be acquiring, but acquire in
the space where they wish to identify and re-brand to be one consistent name.
[00:41:22]
Q: Could you expand on the leading players in the premium K-12 market? What would you say these players
are doing to take market share from Spring Education?
LS: Right, that’s the interesting thing. There really are not collectives of private K-12 operators. It’s really,
largely, these independently owned and operated schools. If I were to just focus on Atlanta, Georgia, I could
give you three or four names of some premium K-12 operators, but that’s not meaningful outside of Atlanta,
Georgia. Spring has a chance to really be a name and network of elite private K-12 schools, and there’s not
direct competition. That’s what’s really interesting about the opportunity.
[00:42:40]
Q: How did Spring Education choose its location? You mentioned searching for affluent suburban
neighbourhoods, but every day a new neighbourhood is popping up, around the housing. How did Spring
Education or any other major player decide which US state or county to operate in, given the different state
regulations for education?
LS: Absolutely. At the time that I was with Spring Education Group, at the time they were still Nobel
Learning, there was a team whose job was to study real estate. There was a Chief Development Officer whose
job was to have his team be out in communities, studying schools, studying demographic patterns, building
projections and finding the right school. I can tell you now, sitting in a different company, the team that Nobel
had was inferior. The work they were doing was inadequate. I see what Primrose does, in a similar fashion, for
securing franchise locations, it’s a [sic] different. There’s a lot of technology out there, there are analysts who
can help with this, but basically it’s finding a person or a team of people who can be a demographic analyst and
help secure the prime location based upon current demographics, projected demographics, job markets, etc.
[00:44:17]
Q: We discussed facilities and continuing to invest in them to market your product as a more premium
experience for students. Could you discuss how the public sector has responded to gains in the for-profit
market, in K-12 or other segments? Would you say public schools have used their funding to reinvest and
make themselves more competitive to bring students back into the district?
LS: Sure. Obviously, private buyers are not privy to public funding, so it’s completely tuition-driven, but I
think, as a parent who’s paying tuition, the parent wants to see return on investment. There are two elements
to that. ROI is certainly, first and foremost, the result for their child. Their child’s academic outcome measures
are extremely important, but the parent also wants to know where their dollars going in terms of maintaining
the facility. Parents generally understand that it’s not always sexy. It might be, “Listen, this year we’re devoting
a lot of our tuition dollars towards repainting the school,” and parents are okay with that because they
understand that’s important. There might also be, frequently, drives, special fundraising events that parents
are willing to engage because they know that all of the funds are going to adding a new pavilion around the
school, on the school campus, and parents are willing to do that. What’s interesting is, in the private K-12
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space in particular, you’re talking about dual-income families in very high-income jobs, many of which will do
corporate matches. You can find that, frequently, in some of these private K-12 schools, there might be a
funding campaign to build a theatre, for example. It’s going to be a USD 4m investment, that’s actually what it
was down at Sagemont, in western Florida. You saw the school raise tuition and note that the raise in tuition
was to help pay for this.
There were fundraising events, where families understood what the funds were being raised for, and there was
an encouragement for corporate match. A lot of the funding that ended up driving adding these new, savvy
features on campus was actually through tuition dollars, and through the parents’ own corporations matching
that fundraising effort. Families are willing to do that. They understand that private education means that tax
dollars are not entering the school. Tax dollars go to public ed only, and families are electing to not take part in
that. They’re willing to pay taxes, but also pay tuition, so they want it to look like something, and so there’s
certainly a vested interest in doing that. The same can be said of the early childhood level. For families that are
in the mid-level or premium childcare space, there is no free public option for those families. There are a
couple of notable exceptions, but there really is not a free option for those families. They realise what they’re
paying for is childcare, health and safety, and education, but they also want to visually see the return on
investment of their dollars, just like you’d see in your own home, and so you can do fundraising efforts at the
preschool level, too. Saying things like fixing the hole in the roof, families aren’t going to be so happy about
that, because that would indicate a health and safety issue, but if it’s to build a new playground, specifically for
the infants and toddlers, families are on board for that. They’re willing to pay more because they know exactly
what their money is going towards.
[00:48:15]
Q: Could you expand on Spring Education’s acquisition strategy? You mentioned a lack of rebranding and a
potential identity crisis. What does the company do to improve the schools it buys? Is it just buying schools for
more exposure and revenues, or actually implementing best practice throughout the facilities?
LS: It depends if we’re talking preschool or K-12. If it’s preschool, it’s really about exposure and it’s about
increasing the portfolio. If it’s K-12, it’s twofold. It’s about increasing the portfolio but it’s also about either
capturing a unique community, or maybe there’s not a school currently, capturing a demographic or
geographic expansion, if you will, or trying to learn what it is about that school that has allowed it to capture
the market share that it has. Nonetheless, regardless of what it is, change is loss. Families need to see that
there’s going to be some kind of improvement. Even if tuition dollars are not changing. Change in ownership
makes families very uneasy, so it’s really important that at the point of acquisition, Spring Education is saying,
“We’re buying the school, we are going to be blending our curriculum in with the current curriculum to
increase academic outcome.” Families are like, “Okay, I’m on board.” Or, “We’re buying the school, we’re
super happy to be bringing in a new leadership team, all of which hold master’s degrees.” “Buying the school,
and we’re going to reinvest some dollars in the playground.” Families need to know there’s some kind of
improvement effort and not just a change in ownership. Change in ownership denotes that there was
instability before and that makes families very uneasy. As far as acquisition strategy, and I’m not being critical,
and nor am I jaded, Nobel, and now Spring, does not have an acquisition strategy.
It truly seems to be, “Wow, we found this. Can we make it work, yes or no?” What I would hope to see for the
company long-term is a three-year strategy, that, “We plan over the next three years to grow our portfolio by
15 K-12 schools, specifically targeting collegiate university communities in the northeast with a sole focus on
finding schools that…” Something that specific, because I think when the strategy becomes narrowed, you’re
going to see better purchases. There have been some good purchases over the years, the most successful being
the Sagemont School down in western Florida, which is a comprehensive three-year-old through 12th grade
school, across two campuses. Unfortunately, because the strategy was lacking, the school is actually operating
at lower tuition rates than they were at the point of purchase. Tuition has actually decreased, and while there
are some interesting adds to the campus, the quality of the facility has deteriorated immensely. I think if there
were a strategy that were narrowed and focused, you’d see better purchases with more targeted budgets to
support the purchase to truly build the portfolio. I think it goes back to Spring needing to decide who are they
and which of the five identities are they going to stick with. I would say, from a business strategy perspective,
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and I’ve been in the industry for 22 years, primarily in the early childhood space but also in the private K-12
space, you have to have one identity, not two and certainly not five.
[00:52:28]
Q: Is the demand in for-profit early childhood and K-12 sustainable? What’s your demand outlook for the next
1-2 years?
LS: Demand is going to continue to increase, particularly for premium childcare. Families, I think, realise for
the first time ever just how demanding it was to have their 0-5-year-old home during the day. I think a lot of
mums in particular thought it was going to be great to be able to be a working mum at home and caring for the
toddler, and now they’ve realised, “Wow. I can’t do that, and my child is missing something by being home.”
Most families have come back saying either, “My child was missing something academically,” or, “They were
missing something socially,” or, “They were missing both.” I think families have a greater appreciation for
early childhood education than they ever had before, which I think is leading more families to try to find a way
to push into the premium space, to really say, “You know what? I want my child to be back in preschool. I can
get the very best of the best experience in preschool.” That’s going to be really positive for the premium space.
For the mid-level childcare space, I think we’ll continue to see growth there. Again, growth is going to be
slower because of the devastation of COVID, and I think it’s going to take a couple of years to fully get back, to
re-staff those schools. Staffing challenges are very real, they always have been. They are worse now then I’ve
ever seen them in the early childhood space. It tends to impact the value and mid-level brands more so
because they don’t pay as well. If I can get USD 18 an hour at Starbucks, why would I take a USD 10 an hour
job that’s harder, caring for 20 two-year olds? I just wouldn’t.
I think at that point the premiums are going to be more competitive right now in this job market, because of
higher starting wages. As far as in the private K-12 space, again, I think parents are more informed consumers
than ever before. They first-hand witnessed not only what their child was learning or not learning but the
quality or poor quality of instruction. Most families are not willing to run the risk of having their child do
online learning again. We know that while some children do online learning okay, there’s something missing
regardless, whether it’s the social piece, the dynamic piece, the hands-on piece, etc. There are also other
elements of instruction that cannot be accomplished virtually, physical education, art, music, musical
instrument instruction, hands-on science experiments, etc. Families that are weary from the experience of
having their K-12 child home, many are saying, “I’m going to go private, because maybe it’s not COVID, maybe
next year it’s some other virus, or some other variant. I can’t have my child have a disruption in their
education again,” or, “I can’t have that kind of disruption in my home life and work life again.” I think that
we’ll see K-12s continue to operate private K-12s at a very high rate of utilisation, and I think parents that have
the means to afford it will continue to invest in it.
[00:55:51]
NH: Thank you, Lauren. We will now end the Interview. Let me close by saying thank you, clients, for joining
Third Bridge Forum’s Interview today. Clients, if you would like to speak to Lauren in a private call or
meeting, please let your relationship manager know. Thanks again, Lauren. It was a really great Interview, a
lot to unpack, but I hope you have a great weekend.
LS: Alright. Thank you so much.
Transcription ends at 00:56:08 of the recorded material
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