Investor interest in the education sector remains strong. While early indications for 2022 suggest that the power dynamic could be swinging back in the direction of buyers, macroeconomic and geopolitical uncertainty are not discouraging the volume of education deals coming to market.  Areas of greatest interest currently are not surprising and include early childhood and K-12, where the volume of uncommitted COVID funds suggest a bull market for several years to come, and workforce training, where skilled labor shortages continue to fuel great interest in new and existing models for upskilling and reskilling workers.

Clearlake Capital Group and Discovery Education

Last month, Clearlake Capital Group announced it would buy a controlling interest in Discovery Education from Francisco Partners. Francisco will retain a minority stake in the K-12 curriculum platform company. Discovery Education is a global provider of science, social studies, math, STEM, and computer coding curriculum through a primarily video-based format. It serves 45 million students and more than 4.5 million educators in more than 100 countries. In its announcement, Clearlake promised to invest in continuing to grow the business globally.

Francisco acquired Discovery Education in 2018 from Discovery Communications, parent of the Discovery Channel and provider of a range of science and nature-based video programming. Francisco paid $120 million for the education assets for which it built an entire administrative back end, and to which it added several additional assets, including formative assessment provider Spiral, augmented and virtual-reality curriculum provider Inspyro, and science curriculum provider Mystery Science. The price of the more recent sale was not publicly reported, but we estimate it was likely more than 10x Francisco’s initial investment.

The success of the business and its appeal to investors is a sign of both the ample resources available to schools due to extraordinary federal spending over the last two years, as well as the continued fragmentation of the market for curriculum content and innovative instructional learning platforms which had previously been dominated in the U.S. for 20 years by only three publishers. While Discovery is still not valued as highly as the $2.8 billion paid by Veritas this month for one of those legacy publishers, Houghton Mifflin Harcourt, it is far closer in value than it would have been even five years ago.

Genstar Capital Invests in Lightspeed Systems

Also last month Genstar Capital announced a significant minority growth investment in Lightspeed Systems joining existing investor Madison Dearborn Partners in the cap table. Lightspeed provides administrative solutions to K-12 schools that support the growing use of digital content, including web filtering, student safety monitoring, analytics, classroom management, and mobile device management solutions for a range of devices and operating systems used for learning. Lightspeed has more than 32,000 school customers in 39 countries. While Lightspeed is not involved directly in digital instruction, its service is critical during a period when the digital infrastructure inside schools has exploded, and the threat of potential security breaches has mushroomed. In this respect, Lightspeed is a nearly perfect diversified investment in the growth of digital content and instruction and likely to benefit disproportionately from the application of unspent COVID dollars over the next several years.

Teachers Pay Teachers Acquires Bakpax

Also notable in the K-12 market last month was the acquisition of Bakpax by Teachers Pay Teachers (TPT). Bakpax was co-founded by Jose Ferreira, who also founded AllCourse and Knewton. The company’s core product is an AI-driven tool that reads students’ handwritten and text submissions and grades assignments in seconds. The Bakpax technology, and the team that created it, will support Easel, a platform product launched by TPT last year that makes it easy for teachers to leverage the resources created by TPT’s community of Teacher-Authors to prepare, teach, assign, and assess students in a fully digital format.

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