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In our September post, we highlighted that while deal value in the education sector was down since 2022, deal volume had remained resilient. Even in PreK-12, with the impending expiration of ESSER funds, deal frequency stayed steady. This month we dive deeper into some key trends that are impacting this segment, and specific deals that highlight how investors and companies are navigating the various headwinds and tailwinds they face. Notable trends include:
While these themes represent only a slice of the complexities that providers, districts, and parents are facing, the deals highlighted below provide color on how investor behaviors are supporting and shaping the evolving needs of these stakeholders.
Conversations among decision makers about the relative merits of best-of-breed and best-of-suite are not new, or unique to education. But as districts look towards the ESSER-funding cliff next year and sift through the variety of products and solutions that were adopted since the start of the pandemic, a clear trend is emerging around the need for streamlining and consolidation. The general priority for decision makers today is to keep the same important functionalities that support staff, teachers, and students, but to do so with fewer products and/or providers.
To accommodate this demand, companies and investors are focusing on increasing the coverage their portfolio can offer to decision makers, whether it be supporting more content areas or offering new and improved capabilities to reduce the need for additional, adjacent products.
One of the more significant transactions highlighting this dynamic is Clearlake Capital-backed Discovery Education’s acquisition of DreamBox Learning in late August, notably only two years after DreamBox expanded its own content coverage with an acquisition of Reading Plus. Through this deal, Discovery Education aims to strategically position itself to address the growing demand for comprehensive educational solutions, graduating from a primarily social studies and science focused provider, to one that offers broader content coverage in math and ELA and across more grades. Additionally, by integrating DreamBox’s innovative adaptive learning technology, Discovery Education can offer a more inclusive suite of tools that not only caters to academic needs but also embraces personalized and effective learning experiences. This strategic move allows Discovery Education to provide educators and students with a consolidated platform for both traditional and adaptive learning, streamlining educational services and fostering a more holistic approach to learning.
In a similar vein, American Securities-backed FullBloom acquired EmpowerU in September. EmpowerU is a platform and service provider that guides students through their wellness journey through social-emotional learning lessons and coaching support. Through this acquisition, the integration of EmpowerU’s expertise will enable FullBloom to offer a more comprehensive suite of streamlined mental health solutions alongside academic support. This consolidation provides schools and organizations with a seamless, one-stop-shop for both mental health and academic interventions, enhancing the efficiency of procurement processes and fostering a more holistic approach to student well-being.
It is worth noting that this consolidation trend is happening across other segments of the education sector as well, as providers aim to deliver more comprehensive solutions to customers. The acquisition of Examity by Gryphon Investors-backed Meazure Learning highlights this dynamic taking shape in the higher education and professional learning space. Meazure Learning, already a ‘full-service provider’ of test development and delivery services, strengthens the comprehensiveness of its delivery-related value proposition with the addition of Examity’s robust proctoring capabilities.
As the preK-12 market becomes more consolidated and competitive, companies are seeking other avenues for growth. International expansion represents one approach, as evidenced by PowerSchool’s acquisition of India-based NeverSkip, a school management/ ERP system that automates administrative and academic tasks for K-12 districts. PowerSchool’s strategic alliance with Neverskip is intended to facilitate substantial growth for the company in India’s education technology landscape. By integrating Neverskip’s localized expertise and solutions, PowerSchool aims to establish an understanding of the unique challenges and preferences within the Indian education system. As importantly, Neverskip’s should provide PowerSchool with a competitive advantage in India, enabling it to leverage existing relationships to expand its reach and influence in the region.
This trend is also not unique to preK-12, as evidenced by higher education-focused Ellucian’s recent acquisition of UK-based Tribal Group. Facing enrollment-related headwinds in the US market, this strategic move allows Ellucian to expand and fortify its global positioning with enhancements to its technology solutions, growth to its geographic coverage and global customer base, and improvements to the support it can provide to its overseas customers.
EdChoice recently named 2023 the “Year of Universal Choice” with seven states enacting new school choice programs, and 10 states expanding their existing programs. As the concept of ‘universal’ choice becomes more prevalent, and families are given more flexibility in – and funding for – education options they choose for their children, there will be increased opportunities to offer products and services that target the needs of these families. As highlighted in the deals below, these opportunities may span different customer segments, but are nevertheless motivated by this common theme of school choice.
The $95 million funding round successfully closed by ClassWallet, a platform provider that streamlines and manages the tracking, reporting, and reimbursement of school-related expenses, highlights the expected durability of providers that support school choice processes. This capital injection will enable ClassWallet to continue reshaping the way state and local government agencies handle financial transactions in education. ClassWallet’s investment substantiates the notion that the school choice movement is gaining momentum. The platform’s streamlined and modernized financial processes empower governments, schools, and parents to allocate funds with increased efficiency and flexibility. This aligns with the prevailing trend of school choice becoming not only more common but also more accessible.
Universal school choice may also bolster B2C activity in the preK-12 market, as evidenced by GoStudent recently securing an additional $95 million in funding. The infusion of capital will allow GoStudent to further innovate and diversify its tutoring services, leveraging virtual reality and artificial intelligence to enhance the learning experience. In doing so, GoStudent contributes to the broader narrative of school choice by offering students and parents access to cutting-edge, personalized tutoring solutions that cater to varied learning preferences and needs, reinforcing the growing importance of flexibility and options within the educational landscape.
Our experience at Tyton across our consulting and investment banking practices reinforces the continued vibrancy of education deal markets. At the same time, building, validating, and executing a successful investment thesis in the sector has never been more competitive. If you’re planning to play in the space, take the time to read the whole story. And, reach out to us – we can help put it into context quickly.
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