It’s Only Rock & Roll, But Sterling Partners Likes It

We’ve seen plenty of evidence that finance and rock music don’t mix: Take Terra Firma’s disastrous investment in music publisher EMI, which has led to a lawsuit from Pink Floyd, or Bank of America’s cringe-worthy U2 theme song, “One Bank”.

But Sterling Partners is hoping to change that with its latest investment in The Paul Green School of Rock Music.

The business is exactly what it sounds like—a training school for aspiring kid musicians. Founded in 1998, the Paul Green School of Rock requires its students to form bands and perform, which, according to CEO Matt Ross, is a highly effective method for motivating students.

The school was the star of a documentary called “Rock School” and bills itself as the “apparent inspiration” for the hit comedy, “School of Rock,” starring Jack Black. (Paramount Pictures has not admitted to the inspiration, Ross noted.) As attention for the school has grown, Paul Green School of Rock began to franchise its brand, growing from eight schools in 2005 to 49 in cities across the country. Until now, the business has existed with capital from angel investors. It’s revenues have tripled in the past three years, with a 2008 turnover of around $10 million.

That’s where private equity enters the fold. With plans for 40 more schools in the works, the company realized it needed a financial backer with operational know-how to help it scale the business, build a proper management team, define best practices, improve training and services, find franchise partners and clarify its brand position. Ross said. Sterling Partners interested the company because of its success with Sylvan Learning Systems, a tutoring and supplemental education services business which Sterling purchased in 1991, exited through IPO in 2003, and then purchased again in 2007 when it bought Educate Inc., the then-parent company of Sylvan.

Paul Green School of Rock and Sylvan have similar back office operations and franchise business models even though Sylvan has a different focus, Ross said. But Ross maintained that the company can continue to grow in a recession, despite “rock lessons” falling into the discretionary spending category. “People are predisposed to invest in their kids,” he said, comparing Rock classes to more traditional extracurricular activities like sports. “But there are some kids who will be less likely to test us out because of the economy, which is why our service has to get better.” He said 99% of the school’s customers would recommend it to others, according to a recent survey.

And why not—it’s more constructive than Guitar Hero.

The majority investment comes from Sterling Partners’ SVP Funds, or its growth funds, which make initial investments of between $5 million and $25 million. Paul Green co-invested with Sterling in the deal and several of the company’s initial investors rolled over their stakes.

Other education plays for Sterling include Smarterville, provider of Hooked on Phonics products, and Chauncey Group, a certification and licensing exam provider.

Update: According to a regulatory filing, the firm invested a total of $10 million for its majority stake in the business.