K-12’s M&A Alphabet Soup: Aftermath of HMH and NWEA Joining Forces

Houghton Mifflin Harcourt (HMH), the largest US K-12 instructional provider by annual revenues, announced in January it had signed a definitive agreement to acquire virtually all the assets of NWEA, a not-for-profit organization and market-leading interim assessment provider in use by more than 10,000 districts. The news ended many speculative conversations among K-12 executives and investors regarding who would “win” one of the most sought-after testing businesses in the space. Now, with the headlines fading fast, here’s what we are watching…

Next Up?

Few independent businesses of scale operate within the formative and interim assessment segments today. As we have noted previously, the critical value of assessment data in powering instruction married with broader market convergence dynamics has led to significant consolidation within the K-12 assessment space over the past few years. Renaissance’s acquisition of Illuminate, Instructure’s acquisitions of Certica, and MasteryConnect, GoGuardian’s purchase of Edulastic, and NWEA’s acquisition of selected state testing assets from ETS highlight the steady pace of change. HMH now joins the arms race in assessment, leaving others (potentially) behind. Given NWEA’s new affiliation, strategics and sponsors will find limited M&A options for scaled, free-standing assessment platforms.

Risk for NWEA’s Partner Network?

Via its Instructional Connections program, NWEA has established an ecosystem of ~30 instructional content partners that align their solutions to NWEA MAP Growth data to support educators’ work with students. Existing partners include leading instructional players such as Edmentum, Imagine Learning, IXL Learning, Learning A-Z, McGraw Hill, and Newsela, among others. NWEA’s Instructional Connections webpage currently reads, “Don’t get locked into one-size-fits-all content. When you choose MAP® Growth™, you’re free to choose the supplemental resources that best meet the needs of your students.”

Needless to say, this messaging has some clear competitive targets. At the same time, it encourages NWEA customers to select the best fit resources for their teachers’ and students’ needs, a message potentially at cross-purposes given HMH’s significant investment. The post-merger decision on how HMH will proceed – whether NWEA will increasingly “recommend” their users adopt HMH content or continue to support a broad range of instructional partners – is a key one for many providers and their sponsors. If those participating in the Instructional Connections program do not have an assessment strategy beyond MAP® Growth™ alignment, it’s probably wise to start crafting Plan B (and C).

It’s About PMI, not M&A

On paper, the transaction is highly operationally strategic and synergistic. In practice, the jury’s out, and likely will be for 12-18 months before we have a good read on the case. As noted above, most observers have more questions than answers. How quickly – and to what extent – will the companies co- or cross-sell? Where and to what degree will product roadmaps align…or not? How will HMH treat NWEA’s current network of content partners? How will customers respond to NWEA’s ownership by a – gasp! – basal publisher?

From Boston (HMH) to Portland (NWEA), and likely, lots of places in between, an array of major and minor decisions will need to be made – the outcomes of which may not be evident for quite some time. The sizzle of January’s announcement now recedes. While market and customer speculation will undoubtedly persist, it is now up to the two organizations, their leaders, and post-merger integration teams to diligently manage the execution of the opportunity and capitalize on the potential upside of the deal.

HMH’s acquisition of NWEA is indicative of the type of value-add M&A deals we expect to dominate the K-12 market this year. In this case, the ripple effects on competitors, partners, customers, and investors stands to be significant. Stay tuned…

K-12 Investments in Whole-Child and Special Education

COVID-19 sparked a significant level of investment by K-12 districts in various whole-child and special education solutions and services that promote social and emotional learning, support students’ (and teachers’) mental health, and address the unique needs of students with special needs. Several transactions in January illustrate the persistence of this investment theme and keep a spotlight on questions regarding its durability once federal stimulus funding expires in September 2024.

• 7 Mindsets, a Georgia-based PreK-12 mindsets-based learning and well-being solutions provider, announced two acquisitions in January. One is BASE Education, a developer of social-emotional learning software for students with individualized behavioral and mental health needs, and the other is xSEL Labs, a social-emotional learning training, resources, and data analytics platform for K-12 schools
• GTY Technology, a national provider of cloud-based solutions for the public sector, announced its acquisition of Ion Wave Technologies, a web-based enterprise software designed for the electronic procurement and special education markets, to expand its eProcurement solutions to the K-12 market
• The Stepping Stones Group, a national provider of therapeutic, behavioral, autism, nursing, and educational services to children in school, acquired Catalyst Speech Language Pathology, a provider of school-based speech-language pathology services across the greater Los Angeles area, to expand its in-school offerings

As 2023 continues, we anticipate a continued emphasis on strategic, value-add M&A, while venture and minority growth investing remains slow.