It's good that they (management members) said they have gotten some good feedback from the Department of Education. But the deal could run into some snags. The rules for these deals state that if the acquiring company doesn't have a record of running a school, for 12 months it can't open new locations or introduce new classes. It could make the buyers increase the amount of equity in the deal, or require sizeable letters of credit.
It all came home to roost. While revenues were in line, costs were out of control. Too much staff needed to integrate the new and existing centers. There was also the sense it has been marketing products too aggressively. In its enthusiasm to sell new products and drive up the average spend per customers it may have driven people away.
Educate is at a place where it is feeling the pressure in its ability to attract customers. While it is tackling a lot of small issues, the elephant in the room is it has effectively saturated this market of affluent families that would pay for this service. So, Educate ceases to be a straightforward growth company and more of a consumer cyclical that will move with the cycles in the economy.