Certainly, there’s lots to discuss in the education deal environment as we close the first third of the year. And, speaking of discussions, how many did you cram in during the ASU+GSV Summit in San Diego last month?! Assuming you could find a place to sit (or in some cases, simply stand) it was a target-rich environment limited only by one’s stamina for conversation. Before we cover some of the notable investment and M&A activity across March and April, we offer three market insights based on our conversations in San Diego.
Deal-makers are eager to get back to deal-making
The relative calm and quiet of 2022 (after a torrid deal-making pace during the latter half of 2020 and 2021) is giving way to an increasing sense of urgency. Those with existing platform assets are understandably more focused on TAM expansion, international, and tuck-in capability deals (e.g., IXL, Houghton Mifflin Harcourt, Perdoceo, Renaissance, Vitalsource). At the same time, others with lightly deployed funds are scouring the landscape for compelling new platform targets. Investors seem increasingly willing to sift through opportunities they may not have during the height of the pandemic purchasing spree in search of a thesis that they can make work.
Paucity of deals will help sustain enterprise valuations (for some)
The inexorable principles of supply-and-demand applied to deal pricing should be in-effect for the balance of 2023. The confluence of a limited number of scaled, high-performing companies in market for the past ~15 months with considerable investor interest in the space, will sustain pricing for the strongest assets (e.g., GL Education, N2Y, Teachers Pay Teachers). We do not expect to see the same pace of large company deal-making as we did in 2021, but 2023 multiples for strong performers may approach some of the highs we saw during that window.
Shorter hold periods for 2020 and 2021 vintage deals
One strategy for taking advantage of current investor demand may be more robust recapitalization activity of established players and/ or shorter hold periods for strong performers. The K-12 instructional landscape is a great example of the former (e.g., see Renaissance and Curriculum Associates), as the increasing scale – and expected valuations – of new oligopoly players makes for a limited buyer pool. Moreover, with the public markets rather frosty, a well-priced recap may provide a compelling alternative in the right circumstances. On the more speculative side, the ability of some companies to sustain – and extend – their pandemic-catalyzed “bump” may encourage some investors to test the markets sooner and lock in a win. While some investors will undoubtedly take the risk, others may turn their attention to early-stage and non-control investments instead.
In shifting to review March and April deal dynamics, we highlight three notable themes.
Capital raise activity trending up
In February, we highlighted the market’s emphasis on M&A activity in recent months. Of the 30 announced U.S. education deals in January 2023, 25 were acquisitions. The announced deals during March and April paint an evolving picture as the proportion of capital raises increased from 17% in January to nearly 30% across the last two months. The continued trending of increased investment activity would certainly benefit a significant cadre of entrepreneurs and businesses seeking capital. We will continue to track this dynamic closely.
Are institutions getting serious about their students’ career readiness?
As higher education costs continue to rise and questions about the value of traditional postsecondary education experiences persist, innovative providers are seeking to help colleges and universities address concerns. Increasing tuition fees is not the only factor challenging students; many are also looking for a more career-oriented approach – and connections to the workforce – from postsecondary institutions. A trio of recent deals highlight companies partnering with institutions to better prepare students for employers and the world of work.
- Unmudl, a skills-to-jobs marketplace partnering with community colleges to provide low-cost, short-term trainings focused on working learners, raised more than $1M. The company seeks to accelerate the time and de-risk the process for getting students into jobs. It offers programs for individuals, colleges, and employers. (Investments led by Stand Together Ventures Lab, Cengage, and Tyton Partners Co-Founder and Managing Partner, Chris Curran, who is an active Unmudl board member, and other investors.)
- PeopleGrove, developer of a career access platform built specifically for postsecondary institutions, acquired Student Opportunity Center, an organization that partners with colleges and companies to run experiential learning programs towards the goal of producing more career-ready graduates. The acquisition allows PeopleGrove to better serve institutional customers and their students by offering access to a diverse range of experiential learning opportunities. (Tyton Partners investment banking practice advised PeopleGrove in 2022, resulting in a growth investment from The Riverside Company.)
- Territorium, a competency-based learning platform provider, announced an investment from JFF Ventures. The company’s platform keeps a verified record of individuals’ skills and competencies, allowing for more equitable hiring practices.
Reading remains HOT!
Literacy and reading intervention businesses and products remain among the most active of segments across the entire education investment landscape. A duo of strategic acquisitions by established market players and a new platform investment by industry veterans highlight the continued urgency in accelerating students’ literacy competencies in the wake of the COVID-19 pandemic.
Literacy approaches have become increasingly digitized and tech-enabled, with the most recently acquired providers utilizing AI, speech-recognition, and adaptive algorithms. It will be interesting to track the extent to which the promise of these (and other tech-enabled literacy tools resources) significantly improves students’ reading and writing skills.
- Savvas Learning, a market-leading, K-12 basal publisher and learning solutions provider, acquired Whooo’s Reading, developer of an AI-driven tool that provides instantaneous feedback on students’ written responses to open-ended questions, ideally enabling teachers to quickly determine their students’ reading comprehension skills
- Paper, a Montreal-based company providing virtual one-on-one academic support, acquired Readlee, the developer of a solution that uses AI-powered speech-recognition software to give students immediate feedback on their verbal reading skills
- MindPlay Education, an Arizona-based developer of education software geared towards reading and math skills, acquired the former high-flyer, LightSail Education, whose adaptive digital literacy platform matches students to books based on interest and skill
- Excolere Equity Partners, a new fund led by former Vistria and McGraw-Hill leaders, acquired EPS School Specialty, which has a portfolio of literacy and math solutions – many of which focus on students who are two years or more behind in grade level. (Tyton Partners investment banking practice served as the exclusive financial advisor to School Specialty in its divestiture of the EPS business.)
Additional announced deals in the K-12 literacy arena included Imagine Learning’s acquisition of Winsor Learning and Ignite! Reading’s $10 million Series A financing led by Rethink Education and an illustrious collection of high-net-worth individuals. Tyton’s strategy consulting practice has been active in supporting sponsors’ market diligence in this area, among others.