John Bates (WGí95) Puts Business and Learning Together

Wharton Club of DC Alum of the Month: May, 2005
by A. J. Schuler, Psy. D. (W '88)

Thereís always something that stands out about each of these interviews, something about the person I meet that really comes through.

Thereís no other way to say this: John Bates (WG, í95) of Arlington Capital Partners gets really excited about learning, and knows how to turn his passions into profit.

If you want to see how one local alumnus is finding ways to do good business and serve societyís needs to create the service economy workforce of the future, read on!

And on a trivial note, the results are in: four out of five local area Wharton Alumni love their Treo 600s! And we donít see a burning need yet to upgrade to the 650, for those who may be wondering. . .

AJ: At Wharton, what was your area of concentration or study?

JOHN: It was finance.

AJ: Whatís your current title at Arlington Capital Partners?

JOHN: Principal.

AJ: What are your responsibilities as a principal?

JOHN: My role involves a bit of everything. I source potential transactions and look for executives with ideas for new investment opportunities. I negotiate, structure, and perform due diligence on potential acquisitions, and then, once we are successful acquiring the company, I help to implement growth strategies and work on strategic direction to grow the organization and position it for the future.

AJ: How hands-on are you with operational support of your invested companies?

JOHN: It depends, AJ. Typically we are not very hands-on in the day-to-day matters of the company. We serve on boards and work with a company to set the strategic vision and strategic direction of the company. Recently, I have tended to specialize in education and business services industries. In one of the companies in Arlingtonís portfolio today, Brightstar Education, there is a need to be a little more hands on, because weíre currently recruiting a CEO for the corporate entity while we have sourced and are in the process of executing other acquisitions.

AJ: How did you get from graduation in Ď95 to this point? Bring your old friends up to date.

JOHN: Iíve done two things. I did investment banking for five years at Lehman Brothers in New York. In fact, I had also been a banker prior to business school. At Lehman, I was in the mergers department, focusing on telecom, technology, media and business services companies. The telecom sector was very busy during this period, so I tended to focus more of my efforts there.

Then, about five years ago I read about this new firm, Arlington Capital Partners, which was being formed here in Washington, DC. It was focused on middle market buyouts in a variety of industries, including several that overlapped well with my background. I also grew up in the DC area. This seemed right up my alley, though I was not looking for a job at the time. On a whim I thought, ďLet me pick up the phone, give them a call, and make the introduction.Ē Three months later I showed up on the doorstep ready to start work. My wife and I moved down here in 2000.

AJ: Tell me more about your industry focus.

JOHN: Personally, during the last two years in particular, Iíve been focused on education and business services companies. From a big picture perspective, education is so critically important for society today, especially given that the U.S. economy is moving briskly towards an even greater service orientation. I read an article in Fortune magazine about two years ago that started my interest in the industry. I began to dig into the subject, speaking to people about growth prospects and where one could invest capital. Since then, weíve been acquiring for-profit post secondary schools; we are also looking at other opportunities in the education and training sector.

AJ: People who read this interview wonít be able to tell, but your eyes and tone really light up when you talk about this.

JOHN: Well, I really found it intriguing, reading the article. I was looking at this from an investorís perspective, so obviously weíre focused at the end of the day on putting capital to work to achieve attractive returns. To achieve these returns, we look for industries which have strong macroeconomic trends. Look at the macro dynamics of the post secondary education industry. There will be increasing numbers of high school graduates over the next five to ten years, as well as increasing numbers of adult learners coming into the post secondary education market. Then factor in the importance of education for oneís lifelong earnings potential. Someone with a high school diploma makes, on average, $25,000 per year, but income potential rises markedly as you move up the degree ladder; with an Associates degree, the average income is almost $35,000, and a Bachelorís $45,000. The for-profit post secondary education industry, in particular, has done a wonderful job providing individuals the opportunity to benefit from career education.

Now letís go back to my earlier comment about the increased service orientation of the U.S. economy. The health care sector, auto repair and maintenance, the IT industry Ė each of these sectors is becoming more service-oriented. With this increased service orientation, the importance of education and vocational training becomes more critical. For example, you go into your doctorís office, and with the exception of the doctor, every other employee could have been trained by a post secondary school like the ones that we ownÖthe nurse, the medical assistants, the billing specialist. And with those macro trends, you know, itís easy to understand how there is tremendous growth potential in the education industry.

Now, factor this in: itís something that youíre doing well for society, because if you can get someone educated, someone trained, you can really enhance that personís lifelong income potential, and prepare the person to make a meaningful contribution to society. By getting your typical vocational school person trained into a career profession, all of a sudden they go from being either minimum wage or from being subsidized by the government to earning $30,000 or $50,000 a year income. Thatís a pretty big dramatic step for the economy today. Our schools provide individuals the opportunity to take the next step or two up in earnings potential. This industry presents the opportunity to make attractive investments and do something positive for people. Thatís a great combination.

AJ: Letís keep catching up on your life since graduation. Hereís where you get to brag about your family!

JOHN: (Laughs) Iím married, and we have one child. My wife, who also got her MBA from Wharton, was Karen Chelius. We have one daughter, Allison. If she plays her cards right, we hope Wharton is in her future also!

AJ: In your work, what do you enjoy the most?

JOHN: I enjoy looking for different businesses to invest in. I think itís a wonderful thing to sit down with different management teams in different industries and ask probing questions of them. I like to learn what drives their business, how they manage their companies, how they set strategic direction and what makes companies and industries tick.

AJ: Any hobbies or special interests, things you do for fun?

JOHN: Golf is it for me. I try to get out every other week if I can. Otherwise, I spend time with friends and family. I also enjoy traveling, and also swim and play a little bit of tennis. But primarily, Iím a golfer.

AJ: Have there been any defining moments that have propelled your career growth?

JOHN: One was making the move to private equity from investment banking because itís a slightly different mindset, being a principal versus being an agent. Back at Lehman in the mergers and acquisitions department, I was largely focused on specific transactions. And here I get to help grow a company over the life of the investment. For example, with our education company, Brightstar, Iím working daily with them to help set the direction of the company and to grow it through organic growth initiatives, and also through acquisitions. We help to source acquisitions for them and work with the management team to grow the overall organization.

AJ: Whom do you admire?

JOHN: Let me tell you: Warren Buffett is one person I admire. Heís picked industries that he believed in, and has been very astute at making investments in both industries that are in favor and out of favor. He develops a belief, an opinion, puts his money to work and has obviously done extremely well. It also helps that heís got Nebraska roots, which is also where my family is originally from. He also picks the right individuals to invest with, because ultimately, youíre investing in an industry, but youíre also investing behind a management team. [Ed: The esteemed Mr. Buffett is a fellow Wharton alum, having attended for two years.]

AJ: Are there any volunteer organizations, charities, foundations youíre involved in?

JOHN: Sure. Iím getting more involved with an organization called Capital Partners for Education ( They provide mentoring and scholarships for students here in DC. Back at Wharton, I used to be a tutor at Bartram High School, so I have a natural interest in the work of CPE.

AJ: Tell me a bit more about Arlington Capital Partners.

JOHN: Arlington Capital Partners is a middle market focused buyout firm. We invest in a number of different industries, including business services, media, education and training, IT, defense and health care. We look to invest in industries with attractive macro trends, as well as to partner with successful managers or management teams in one of those six industries. Our fund size is $450 million and we have six portfolio companies today that fit within those industry groups.

AJ: Do you anticipate the firm will expand in new directions or will you stick with your current focus?

JOHN: Weíre maintaining our focus. We have been successful making investments in the past within these industry groups and this transaction size. The investments that we have made have been primarily within the U.S. Weíre not regionally focused. Our portfolio companies are spread out throughout the country, and thereís enough continuing opportunity in our industries that we can continue to do what we do best and prosper.

AJ: Anything of particular interest youíve read lately?

JOHN: I enjoy World War II history. Iím reading a book right now about German efforts to put spies on U.S. land via U-boat in 1942. Saboteurs is the name of the book. They sent U-boats to Long Island and to Florida and tried to plant explosives and disrupt general industry here. It was not successful, though.

AJ: Iíve done a lot of interviews in different contexts in my career, but your passion for learning really comes through. Thanks for taking the time to take part in this interview for Wharton Club of DC.

JOHN: Thank you. I look forward to seeing classmates at the upcoming ten-year Wharton reunion.

A. J. Schuler, Psy. D.

A. J. Schuler, Psy. D. is an organizational development consultant and executive coach. He is the author of the forthcoming book, "Revolution: How to Transform Your Company from Within."