Must Read Blog September 8, 2016

American Splendour

Education sector M&A activity increased once again in 2015. Nick Herbert takes a look at the deals and emergent sector trends.

Source: Education Investor, July/August 2016

[Excerpted here by permission]

“There has been a bit of a micro-bubble in ed tech,” says Chris Curran, Founder and Managing Director at Tyton Partners. “There are still multitudes of phenomenal companies out there with great prospects but those that could give 100-times returns are very scarce.”…

It is a sign of a market reaching its next stage of maturity, one which is also marked by changes to investment decisions. Buyers are increasingly looking for businesses with sustainable and growing revenues, say commentators, and that means some deals are falling by the wayside as investors wait for proof of repeatable revenues before taking the plunge. “Even where there is the possibility of dramatic adoption of applications,” says Curran, “without dependent revenue, deals are not getting done.” It is certainly not the case for all companies, however, with some firms without establishedrevenue streams still seemingly able to raise rounds of financing from investors that usedifferent metrics to evaluate the viability of the target’s business model. All in all, there seems to be little fear of a slowdown in the US education space any time soon or even in the medium term – although breaching the volumes registered in 2015 will depend on the appetite of the large strategic acquirers to take on the billion dollar-plus deals.

“Global education will have an upward ascent for the next 10 years,” says Curran. “What drives GDP is education, and that’s as true in the US as it is in the rest of the world.” With such fundamental support, interest rates at historic lows, capital widely available at attractive levels, and education counter cyclical to the jittery financial markets, interest in the US education sector is set to remain brisk, at least among the mid-caps, and at valuations comfortably exceeding those currently attainable by going public in the share markets.