Blog + Higher Ed + K-12 + Private Equity
Blog + Higher Ed + K-12 + Private Equity
Experts are stumped. Even as GDP declines and some companies announce layoffs, the U.S. continues to add jobs, with many more positions left unfilled. Though edtech venture investing has visibly cooled, related M&A activity continues to be robust. This continues to hold true even as it begins to lean more heavily toward consolidation than the establishment of new platforms. K-12 remains the darling of the sector, but we continue to see bold tactical bets being made in higher education and corporate and continuing education.
Below, we look at recent deal activity in the education market through the lens of different potential macroeconomic scenarios. If uncertainty has introduced some hesitation, the good news is that whichever way the economy breaks, there is an education model that is likely to thrive.
We think about the education sector in three large buckets: K-12, Higher Education, and Corporate and Continuing Education. Each of these market groups has different histories under varying macroeconomic conditions and different secular drivers that could challenge how well those past experiences predict the future. As the sector navigates macroeconomic uncertainty, we see investors focusing their bets.
Twenty years ago, K-12 was anathema to private investors. Long sales cycles, difficult buyers, cyclical budgets, and political uncertainty put most investors off. Today, the picture is altered. The advent of the SaaS business model, a generational change in buyers, and the influx of new federal spending has made K-12 edtech a more popular and investible sector. At the same time, the scale of available funding, the urgency of the challenges created by the pandemic, and the current appetite for digital solutions makes K-12 nearly impervious to near-term recession threats. And recent deal activity reflects that enthusiasm.
A great example of a high stakes bet in K-12 edtech made irrespective of near-term economic conditions was Texas-based Sterling Group’s $650 million purchase of Ergotron—the maker of digital display mounting and mobility products for K-12 and college classrooms. Like Levi Strauss outfitting prospectors during the Gold Rush, Ergotron will benefit from school edtech purchases regardless of specific content or platform choices.
July was also a big month for early childhood investments, which remain a keen area of focus for investors. Historically, Early Childhood has been a modestly cyclical sector that performs best during periods of full employment.
Regardless of the direction of the macroeconomy, the trend toward consolidation should continue to strengthen the ECE sector.
The Higher Education sector has historically been viewed favorably by investors. It’s size, relative buyer concentration, generous federal funding regime, and counter-cyclical nature made it popular for many of the reasons investors often avoided K-12. However, investor enthusiasm has recently cooled due to regulatory uncertainty, growing consumer indifference to the price and merits of the product, and an expanding supply of degree alternatives. While recession talk would, in past cycles, have begun to attract new investment, the continued tight labor market (which makes students more difficult and expensive to acquire) has recently frozen much of the investment activity in the sector.
Despite the cooling note above, we noted several bold bets among last month’s deals.
Aside from the benefit of avoiding the regulations associated with Title IV, these low-cost alternatives offer their acquirers a new pathway toward a more affordable and potentially more competitive approach to degree offerings.
Also notable last month was Carnegie Dartlet’s acquisition of Maguire Associates, moving the enrollment management company into the financial aid optimization market. Consolidation among higher education services companies is likely to continue following the large private equity bets made in Ellucian and Anthology last year.
The corporate and continuing education sector has historically been even more strongly cyclical than K-12, and during the white-hot labor market of the last several years has expanded considerably. Individual spending on skills development has expanded. And corporate spending has grown to include employee reskilling as companies have been reluctant to allow even redundant workers to leave their payrolls. If unemployment starts to rise, this sector may have the furthest to fall. But as long as critical roles remain unfilled, companies engaged in skills-oriented training should continue to thrive.
In July, we saw multiple examples of consolidation:
And two new platform bets: