Must Read Blog September 20, 2023

Read Beyond the Headlines – Looking Back on 12 Months of Education Deal Activity 

“Read beyond the headlines” was a constant refrain from one of my undergraduate history professors. It’s an important reminder that those who only read the headlines generally miss the true story; and, it’s a good prompt for investors and those wondering if the education investment story has run its course. Hint – it hasn’t.    

This month, we share data and insights that push beyond the obvious – that the value of education deal activity is down. In fact, while value may be down, volume is holding steady. PreK-12 deal markets remain vibrant even with ESSER expiration 12-months out. And, if you aren’t understanding the international dimension of our sector, you’re missing a considerable part of the story. Read on to better understand these dynamics, drawn from Tyton Partners’ proprietary database of education investment and M&A activity.  

Before we dive in, a brief methodology overview: our team reviewed 14 months of publicly announced investment and M&A data, which we captured from various sources and tags. The analysis below generally focuses on H2 2022 and H1 2023 data, and where trending appears to be different across July and August 2023, we call it out. We also plan to publish a robust 2023 investment and M&A review with selected historical comparative analysis at year-end, building on and expanding our prior years’ efforts.   

Deal volume is down, but not by much 

While deal values are certainly down, deal volume remains resilient – down only ~4% between H2 2022 and H1 2023. Thus, depending on where you sit in the ecosystem and what you are trying to achieve, markets remain very much open. During this period, that has generally meant an advantage to the acquirers, as nearly 55% of the transaction activity has been M&A-oriented. In the past year, these efforts often have been from strategic acquirers to enhance and extend their platforms. Within the M&A category, strategic acquirers represent nearly 60% of announced deals. Illustrative recent announcements include:  

By comparison, financial sponsors’ efforts to find platform investments remains intense – and somewhat challenging – particularly for those seeking to write $100M+ equity checks. However, Q2 2023 was the most balanced quarter between strategic and sponsor acquirers, suggesting that market conditions and opportunities may be trending back toward the PE community.  

Investors remain keen on PreK-12 and Corporate learning & development 

PreK-12 and Corporate learning and development (“L&D”) businesses accounted for ~80% of the transactions across H2 2022 and H1 2023, a trend which has persisted in Q3 2023. The value proposition challenges facing traditional postsecondary institutional models are reflected in more modest investment activity in this sector, where institutional supply and student demand gaps exist globally (albeit, in different ways) and tuition levels – particularly in the U.S. – continue to spiral unsustainably.  

During H2 2022, investors and acquirers drove a fairly balanced distribution of deal activity across PreK-12 and Corporate L&D segments. However, PreK-12 deal activity surged during H1 2023, capturing ~50% of all deal activity, and more than 60% of the combined PreK-12 and Corporate L&D activity. Ensuring early learners start strong and meet critical, life-long proficiencies and helping adults to thrive in dynamic, rapidly evolving work environments and industries are compelling and durable investment themes; it’s the “middle” – aka post-secondary education – of this learner journey that remains under pressure. We expect to see this continued trend of investment volume distribution across the traditional segments, both in the U.S. and globally. 

It’s a global game 

Education investing remains a compelling narrative internationally, even as the U.S. market remains one of the most significant characters in the story. Tyton’s deal activity database reveals an ~60/40 volume split between non-U.S.- and U.S.-domiciled businesses’ investments and transactions. Interestingly, Q1 2023 revealed a nearly 50/50 split between international and U.S.-announced deals, before shifting to 70/30 in Q2 2023; through the first two months of Q3 2023, the distribution of deals appears to be shifting back to a 50/50 split.  

Cross-border dynamics are reflected in much of the deal activity. Strategic acquirers seek to expand TAM – often in large, mature U.S. markets; investors are striving to capitalize on innovative technology players and international markets’ plays that run towards smaller, but more rapidly growing market opportunities. Either way, the global education sector has never been more connected while simultaneously exciting new models are ever more dispersed geographically.

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.