Professor Milken's Lesson Plan
The audience has changed from bond traders to public school superintendents. But Michael R. Milken, the convicted junk-bond king who once held court at the Predators' Ball, still knows how to work a crowd. At the Century Plaza Hotel in Los Angeles recently, Milken hosted his annual National Education Conference, where he handed out $25,000 awards to outstanding principals and teachers. Milken moderated panels on technology in the classroom and the economics of educational software and programming.
Milken is putting a lot of time and money into improving public education. But his efforts aren't entirely philanthropic. For Milken, the few million dollars it cost to stage the annual conference is mere pocket change. He has invested far more in a plan to make a fortune in what he calls the biggest opportunity around: the human capital market, by his reckoning a $100 billion industry, providing goods and services ranging from CD-ROMs for kids to high-tech consulting to employee training for the information economy.
Milken's vehicle: Knowledge Universe, a secretive company he launched last spring with Oracle Chairman Lawrence J. Ellison. Knowledge Universe has quietly built up a collection of businesses that, according to company president Thomas Kalinske, already totals $600 million in sales and will reach $1 billion in revenue by the end of the year.
TECHIE DROUGHT. Those sales will come from a collection of companies that Milken has snapped up or invested in. They include a 50.1% stake in CRT, a British consulting and training company bought for $169 million, and most of the franchisees of Productivity Point International Inc., a Plantation (Fla.)-based training company. On July 23, he acquired Symmetrix, an $18 million technology-consulting outfit near Boston. Up to seven more acquisitions are in the pipeline, say company executives.
The plan is for Knowledge Universe to be the leading brand name in the fast-growing business of education products and services. "We are suffering a chronic shortage of high-tech professionals right now. You would have to be an idiot to lose money in the knowledge market over the next few years," says Stan Lepeak of META Group Inc., a technology consulting firm.
Milken, who's still worth an estimated $500 million, backed Knowledge Universe with $125 million of his own money. His brother, Lowell, matched that contribution, and Ellison pitched in $250 million. To run the empire's divisions, Milken has enlisted veterans from the consulting, training, and toy industries. Paul Garcia, a former First Data Corp. executive, heads training. Kalinske, former CEO of Sega of America and Mattel Inc., is president of the holding company and CEO of the nascent kids' division. Gresham T. Brebach, formerly an executive vice-president at Renaissance Solutions and a director of McKinsey & Co., came on board in February as chief executive of the consulting division.
The most aggressive push at the moment is in the information-technology (IT) consulting arm. The company intends to create a comprehensive lineup of services--from consulting on production and process technologies to devising methods for valuing employees. Such consulting services are a hot growth area--40% to 50% a year, analysts say. But it's hardly uncharted territory, with all the major accounting giants, such as Andersen Consulting, well entrenched as well as specialists occupying every niche. Says James Sims, chief executive of Cambridge Technology Partners Inc.: "It sounds like they aim to attack the six major areas of IT consulting at once. I would question that."
Milken's ambitions in the kids'-education market might be even tougher to realize. Shortly after joining forces with Milken, Kalinske made an unsuccessful offer for Knowledge Adventure, a leading maker of "edutainment" computer programs. He's now stalking three other possible acquisitions. But the consolidated market has few worthy targets left.
Milken has even grander long-term plans, including a "virtual university" that would be beamed to students by satellite television or over the Internet. But despite the outsize ambitions, Knowledge Universe has one factor that can't be discounted: Milken himself. "He's our greatest off-balance-sheet asset," says Brebach. Will the junk-bond genius of the '80s become the human capital titan of the 21st century?