While February may be the shortest month of the year, its limited duration belied the volume of sector activity. The U.S. K-12 market experienced ~$1.1 billion in deal value across a single week, and more than one-third of the month’s announced deals were in excess of $30 million, based on invested capital or enterprise value.
February’s investment landscape highlights notable themes that will persist in a “post”-COVID-19 environment, including the continued rise of a new curriculum aristocracy seeking to displace the historical oligarchs. As K-12 students increasingly return to their schools and postsecondary institutions anticipate a Fall semester with classes back on campus, schools will nevertheless need to deliver more dynamic, flexible learning experiences and resources to engage and retain students.
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The New Curriculum Aristocracy
Over the past 10 years, technological and demographic changes have led to a material reshaping of the curriculum content markets at both the K-12 and post-secondary level. The erosion of previous barriers to entry and a change in consumer attitudes have allowed a host of competitors and substitutes to emerge to support and enable the curricular functions previously performed by a relatively small number of textbook providers. This transformation in the market for curriculum content has accelerated in the pandemic and five deals announced in February underscore how dramatically this marketplace is transforming in a sector that is otherwise resistant to change.
Historically, the cost and difficulty of marshalling subject matter experts, as well as printing and distributing textbooks created a high cost-of-entry that protected the large publishers from would-be competitors. These dynamics and the high cost of selling into a highly distributed geographic network of buyers led to a concentration of providers in the K-12 basal textbook market.
But the retirement of Baby Boomer teachers and administrators led to a growing comfort with digital content among buyers. Furthermore, the ease with which this content could be produced, sold and distributed meant that the large publishers, despite having their own competent digital offerings, could no longer maintain their lock on the market. Importantly as well, subscription pricing for digital materials meant that schools could pay as they went rather than laying out five years-worth of cash up front for a new set of materials, reducing the stakes involved in making different decisions. At the same time, the explosion of resources available through the Internet meant that teachers were emboldened to design their own lessons and source materials to support their teaching rather than being obliged to follow the lesson plans dictated by the publishers. The traditional distinction – and value proposition – between basal and supplemental materials began to erode, enabling new leaders to emerge.
One of these new(er) leaders, Renaissance, announced last month the acquisition of Nearpod in an all-cash deal valued at $650 million. Nearpod’s success and rapid growth through the pandemic is a great example of how technology has changed the way educators think about curriculum content. Its platform allows teachers to upload and distribute interactive digital lessons, including virtual reality content, mini-games and quizzes. Nearpod also provides a library of more than 15,000 pre-made lessons from third-party providers and allows teachers to track student progress and interactions with the materials. It is the latest addition to Renaissance’s growing stable of content offerings, including MyOn (Tyton Partners represented MyOn in that transaction) and Freckle. Despite the fragmentation in the K-12 content market, the economic imperative to leverage its expensive selling apparatus creates a strong logic for continued inorganic growth.
Another leader in this new K-12 content landscape is Weld North Education which last month announced the acquisition of BookheadEd, a developer of digital-first core curriculum. The company’s flagship product StudySync provides a language arts curriculum that incorporates video and other multimedia content into its materials. Weld North, which also owns content and courseware companies Edgenuity, Imagine Learning, and LearnZillion, will also take advantage of BookheadEd’s content development platform to build out additional offerings for its growing channel.
In higher ed, another factor has driven the adoption of textbook alternatives: the rapidly rising cost of college. Textbook pricing, combined with runaway tuition costs, have led students to simply stop buying required texts. Sensitive to this dynamic, professors who assign the required materials have become more open to other types of digital course materials – particularly those that may be less expensive than traditional textbooks including both commercial and open education resources (OER). Because of the fragmented nature of colleges and programs and the growing prevalence of OER options, this market is less likely to reconsolidate in the same way that the K-12 market seems prone to. That said, there are other advantages to scale and three deals announced in February illustrate this point.
Digital courseware provider Top Hat announced a Series E raise of $130 million led by Georgian. This brings the total raise for the company to $235 million. Top Hat offers students a subscription model ($30 per term or $48 for a full school year) for access to its platform with some digital texts charging additional, but comparably modest, fees. The company boasts customers in 750 of the top 1,000 colleges and universities in North America. In the pandemic Top Hat saw its student user base grow more than 10 percent to three million active students.
Also in February, the Volaris Group announced the acquisition of content authoring software company SoftChalk LLC for an undisclosed amount. SoftChalk gives instructors the ability to create custom interactive course materials including interactive games, self-assessment quiz questions, and annotated text. The platform also provides educators with feedback regarding student engagement.
Finally in February, Denmark-based Labster which provides interactive, virtual laboratory simulations for students to study science in person, hybrid and remote situations, announced a $60 million Series C round led by Andreesson-Horowitz. Already in 2,000 universities and high schools in more than 70 countries, Labster will use the additional capital to further build out its global support team.
Though there were no specific deals in February, technologies to facilitate access to or otherwise leverage OER have also been a part of this emergent landscape. As examples we note the growth of Lumen Learning and OpenStax, as well as the efforts by legacy publishers to enter this market area. (Tyton advised WebAssign in its 2016 sale to Cengage and advised Wiley in its 2019 acquisition of ZyBooks.) And while the ecosystem is more robust at the post-secondary level, leading K-12 OER providers have captured significant mindshare as well, such as Great Minds, Illustrative Math, and Khan Academy, as well as platforms and providers that blend proprietary content with tools to discover OER materials.
All of these deals speak to both the long-term trends upending the status quo among publishers and schools, as well as the near-term challenge associated with serving students remotely in the pandemic. What it also illustrates, is that while the names have changed, the economies of scale associated with providing multiple products to the same de facto buyer remain intact.
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