Sector Deal Dynamics – November 2019

by: Tyton Partners | Blog |Nov 6th, 2019

As we bear down on the holidays, we find the sector particularly active on the deal front, with a number of compelling platforms in or coming to market. We expect many of you remain busy and hope that you will be able to carve out time for turkey later this month.

Early last month, we announced the sale of our client Accelify Solutions, a leading special education management systems provider, to Frontline Education. We offer reflections below in “K-12: And Then Came SaaS” on the dynamic investment and M&A activity in the enterprise software markets. In addition, whoever thought grammar and writing would be so hot?! Read below to find out more.

For those of you interested in the early child ecosystem, the conference you need to be at is later this month. NAEYC – fka the National Association for the Education of Young Children – is holding its annual party in the Music City, which is still known as Nashville. We will be there with our instruments, so let us know if you are rolling in for the show.

Finally, as we and the Tyton Partners team find ourselves filling up on a diverse and exciting buffet of banking and consulting assignments and new relationships, we have much to give thanks for. We extend our heartfelt best wishes to you and yours for a healthy and joyous holiday season.

Cheers,

Adam & Chris

K-12: And Then Came SaaS

The complicated politics associated with capital budgeting stunted the growth of effective technology solutions in schools for years. Despite all of the ways that business processes were made more efficient and more productive through the introduction of software, the difficulty of financing upfront purchases of software tools meant the market was unattractive for developers, and school administrative productivity lagged as a result. Even mission-critical administrative software like student information systems (SIS) lagged the development cycles common in business software.

And then came SaaS. With cloud computing and the ability to subscribe to software on a pay-as-you-go basis, schools have become newly attractive customers and the availability of administrative software tools that offer potential gains in productivity and effectiveness has exploded.

But even given this change, the school market is complicated. Navigating the 13,584 purchasing fiefdoms known as school districts can be expensive and difficult. And so, the expansion in compelling product has led naturally to consolidation around distribution platforms. In this respect, no one has been more ambitious than Thoma Bravo-backed Frontline Education, which this month consolidated its 14th company, Accelify Solutions, a developer of online tools for managing special education services.

Accelify offers SaaS-based tools that help school administrators with the scheduling, planning, compliance and billing processes involved in serving students with special needs. It serves three of the 10 largest U.S. school districts. The leverage offered by Frontline, which serves 60% of all K-12 schools in the U.S. with administrative software, is clear as each company can help the other expands its footprint and influence. Tyton Partners advised Accelify Solutions in the transaction.

In a similar vein this month, market-leading SIS provider PowerSchool announced a definitive agreement to acquire LMS provider Schoology. PowerSchool has offered its own LMS since 2016 when it acquired Haiku Learning, but has failed to grow its market share past three percent according to LISTedTECH. Schoology on the other hand, is a top four provider with a mid-teens percentage market share. Among the top four, which includes (free) Google Classroom, Canvas, and Moodle, Schoology is the only offering primarily focused on the K-12 market.

Although the financial terms of the proposed transaction were not disclosed, Schoology has raised more than $57 million in venture capital since its founding in 2009. Its decision to combine with PowerSchool comes after its own failed attempt to enter the crowded higher education LMS market. We expect that the combined footprint and distribution power of the newly amalgamated enterprise will offer a new and meaningful challenge to the shares of Canvas and Moodle.

Postsecondary: Second Digital Writing Assistant Unicorn of 2019

Grammarly, a provider of digital writing assistance that provides feedback on spelling and grammar has raised $90 million in a round led by General Catalyst and IVP. Both firms also participated in the company’s first funding round of $110 million in May 2017. Axios reports the valuation at over $1 billion. Grammarly is now the second billion-dollar writing tech deal in 2019, following Advance Media Publications acquisition of Turnitin for $1.75 billion last March.

Grammarly claims its tools are used by 20 million people every day at home and across more than 2,000 institutions, and that more than 1,000 schools and colleges use its education products. In addition to spelling and grammar, the company’s artificial intelligence technology can offer tone and other stylistic suggestions in people’s writing. The company offers a basic version of its product for free, and a subscription to advanced features ranges from $11 to $30 per month. Grammarly says it has been profitable since 2011.

As a scholastic tool, its valuation is remarkable and places it in the middle of an emerging category of tools and services that help students successfully complete their programs of study. But weighed against the larger implications of its artificial intelligence technology, which could ultimately lead to machine-generated and edited content across a wide range of media, its latest investors may have stumbled across an emerging technology bargain.

Human Capital Management: Carlyle Closes on HireVue Acquisition

Global private equity behemoth Carlyle Group announced that it has acquired a controlling interest in HireVue, a leading provider of AI-driven talent assessment and video interviewing solutions. Existing investors Granite Ventures, Sequoia, and TCV, together with the company’s management team, will remain minority investors. Carlyle is a logical partner for HireVue as its solutions are increasingly being embraced by global enterprises. HireVue is available worldwide in more than 30 languages and has hosted more than 11 million on-demand interviews and one million assessments, according to Carlyle’s press release. It boasts more than 700 customers worldwide include more than one-third of the Fortune 100.  The company employs a combination of organizational science and predictive artificial intelligence to help companies’ source, hire and develop talent. HireVue, and now Carlyle, is among a growing cadre of firms at the leading edge of the use of technology to improve the efficiency and effectiveness of corporate staffing.

Recent Deals

K-12

Lovevery Raises $20M

Literati Books Raises $12M

Winnie Raises $9M

Kangarootime Raises $3.5M

Tailor-ED Raises $1.6M

VIPKid Raises Undisclosed Amount

Blackstone Acquires Aakash Educational Services

EverFi Acquires EdComs

Frontline Education Acquires Accelify Solutions

KidPass Acquires Mommy Nearest

Modular Robotics Acquires Dexter Industries

Powerschool Acquires Schoology

Renaissance Learning Acquires Schoolzilla

Riverside Insights Acquires Educational Software for Guiding Instruction

Postsecondary

Grammarly Raises $90M

Crimson Education Raises $20M

Papa Raises $10M

Campuswire Raises $3.6M

Stellic Raises $3.1M

Korbit Raises $2M

Element451 Raises $1M

Lottus Education Raises Undisclosed Amount

MobLab Raises Undisclosed Amount

Stride Raises Undisclosed Amount

Human Capital Optimization

Fountain Raises $23M

Kenzie Academy Raises $7.8M

Kangarootime Raises $3.5M

Flockjay raises $3M

Blue Canoe Raises $2.5M

Aspireship Raises $1.4M

Guild Education Raises Undisclosed Amount

Intellum Acquires Appitierre

Leeds Equity Partners Acquires VitalSmarts

Logibec Acquires Knowledge4You

The Carlyle Group Acquires HireVue

Workforce Logiq Acquires ENGAGE Talent

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