A Time for Building

This month we highlight a shift we are beginning to see in the education deal market. Asset prices are facing pressure across the broader economy due in no small part to a stock market that may be anticipating an inevitable hike in interest rates. While this may begin to shift some leverage from sellers to buyers, we don’t currently see, or expect to see, any slowdown in the overall volume of activity. 

We do believe, however, that the nature of the deals could begin to focus much more on consolidation around existing platforms rather than investment in new ones. We offer some early evidence for this trend in our round-up of January deals.

Adam Newman

EdTech stocks have had a rough start to 2022. Against a flat S&P500 (at 2/4/22 close) and a 1.58% increase in the Nasdaq composite, 2U (TWOU) shares have declined 20.6%, Chegg (CHGG) shares have fallen 15.5%, Coursera (COUR) shares are down 19.6%, Instructure (INST) shares have lost 3.4%, and PowerSchool (PWSC) stock has fallen 4.4%. Each of these companies serves a slightly different end market and the corrections all exceed any manifest financial underperformance. This suggests to us that the post-Corona mania for all things EdTech may be settling down to valuation levels more reflective of other tech-enabled services sectors. 

In the meantime, we see some emerging evidence that if 2020-2021 was a period during which investors launched new education platform companies — even reaching to ever earlier stage companies to accomplish that goal — 2022 seems to be shaping up to be a year of consolidation in which those platforms are bolstered for scale and long-term success.

Setting the stage for this theme in 2022 was the January acquisition of CampusLogic by Ellucian, itself acquired only last September by Vista and Blackstone. CampusLogic provides a user-friendly complement to Ellucian’s own financial aid software module, and a new product offering to Ellucian’s more than 2,700 institutional clients. CampusLogic supports institutional enrollment and completion goals by helping students better understand and navigate the financial decisions associated with attending college, turning a passive administrative function into a positive experience for student and families. The deal lends additional credibility to Ellucian’s goal to actively enhance institutional success through innovation and to provide a broader and more comprehensive suite of software to its customers. While the terms of the deal were not disclosed, CampusLogic had previously raised $192.5 million.

While the Ellucian acquisition of CampusLogic was likely sizable, the largest deal in January was undoubtedly the sale by Adtalem of its financial services training businesses to a consortium of Wendel Group and Colibri Group in an all-cash transaction for $1 billion. Colibri, which operates professional test prep businesses aimed at consumer and business customers, will assume the Becker CPA test prep operation and the OnCourse Learning banking continuing education company. Wendel, a European investment company will assume control of the Association of Certified Anti-Money Laundering Specialists (ACAMS) which provides both training and certification in anti-money laundering practices. According to Wendel’s announcement, it valued ACAMS at $500 million. The transaction represents a meaningful expansion for Colibri which boasts a steady, predictable, growing, and profitable revenue stream, serving more than one million professional learners each year – all qualities highly favored by public market investors.

A third, high-profile consolidation in January was BARBRI Global’s acquisition of legal publisher West Academic. West is the leading U.S. publisher of casebooks, treatises, study guides, and other legal materials in both print and digital media formats. The acquisition deepens BARBRI’s already dominant position in legal test prep and continuing education and enhances its footprint with law schools as well as consumers. BARBRI Global itself was acquired in March of 2021 by private equity firm Francisco Partners.

Land and expand has been a popular investment strategy as long as there has been investing, so this type of consolidation is nothing new. But as markets become more wary of inflation and investors become more cautious about general market conditions, we expect large and small platform expansions to become an increasingly dominant theme in education deals in 2022.