Must Read Blog Private Equity September 4, 2019

Sector Deal Dynamics – September 2019

Hope you had a wonderful end to the summer and are well prepared for the mad dash to the end of the year. August was a somewhat quiet month, punctuated by a few notable deals including Cambium Learning’s acquisition of AIR’s K-12 testing business, Coursera’s first acquisition to bring more robust pedagogy to its evolving educational delivery environment, and ASU’s announcement of Cintana, its effort to bring its innovative online models and experience to a cohort of international universities in partnership with Laureate Education founder and long-time CEO Doug Becker.

We know several sizable deals are making their way to market currently and expect a number of notable transactions in the coming months. We are always happy to discuss both recent activity and pending transactional dynamics, as well as supporting any diligence and financial advisory needs. Many members of our senior team will be in NYC next week (Sept 11-13) and happy to schedule time to visit; please do not hesitate to reach out.

Best,

Chris & Adam

ASU Launches Second Major initiative

ASU is at it again.

Last week Arizona State announced that through ASU Enterprise Partners it would join with entrepreneur Doug Becker to create Cintana, a public benefit, profit-seeking corporation focused on helping non-U.S. universities emulate the ASU model to grow and expand access to post-secondary education options. While the specifics of Cintana’s business model (and the specifics of its ownership structure and launch capital) were left vague in the announcement, the implication is that a not insignificant part of the advice offered to schools would involve helping them launch online programs, benefiting to some degree from the lessons learned by, if not the actual infrastructure of, ASU Online.

While many universities around the globe have launched online programs, they remain generally less well developed than they are in the U.S., and the ASU example represents a big step forward for many non-U.S. schools. In fact, the announcement referenced the number of international universities that routinely approach ASU for advice as well as the school’s larger mission to fuel educational attainment. Becker, of course, is the founder and previous long-time CEO of Laureate Education, a global network of for-profit universities, that itself operates online programs in the U.S. and internationally.

Cintana is the second high-profile initiative launched through ASU Enterprise Partners, which itself operates under the auspices of the ASU Endowment for the benefit of the university. Last April, the group announced it would hold an equity stake in InStride, a start-up, for-profit enterprise funded by and majority-controlled by TPG’s RISE Fund, focused on applying the employer partnership model created with Starbucks on behalf of other schools and other employers. As with Cintana, ASU’s contributions to the enterprise were of partnership assets, expertise, and of course its brand credibility. ASU Enterprise Partners has indicated there will likely be other, similar company launches.

Successful as it is, ASU is not immune from the revenue pressure created by rising costs, a constrained ability to raise tuition and limited state support. This pressure, in fact, is one of the drivers of the rise of online programs among traditional universities over the past several years. However, this practice of launching entire profit-seeking companies is something quite new. While the rhetoric involves sharing expertise and other intellectual assets, the obvious subtext is that ASU is also contributing brand equity to these enterprises. Though brand new, both InStride and Cintana will have access to prospective university clients by virtue of ASU’s high profile and previous success. And while ASU is undoubtedly unique as a public university in the range of innovations it has adopted, its example begs the question of whether other universities might be persuaded to enter the higher education services sector themselves through off-balance-sheet tributaries. Typically traditional universities, particularly those with meaningful endowments, are far too risk averse to attach their names to such high-profile ventures.

The financial risk to ASU from these enterprises, which are funded by outside capital, is small. The brand risk is arguably greater, as the University will participate in, but not control the companies’ practices. However, the most material risk is likely to the reputation of ASU’s maverick president Michael Crow, whose name is personally and intimately attached to each project and whose judgement would likely be second-guessed should any of them fail.

Postsecondary: Last Mile Training Offered Through University Partners

Pathstream, which partners with tech firms to create credit-bearing programs for colleges, raised $12M in Series A funding. The company received investment from TDM Partners, Hereditas Capital Management, Bisk Ventures, New Ground Ventures, and Rethink Education. The company teaches students to use common professional software tools including Tableau, Salesforce, and Facebook Ad Manager with an online platform that allows students to mimic on-the-job experiences. Given the knowledge gaps typically described by employers, we believe Pathstream has ample opportunity to further develop its model in a range of other areas. The more meaningful development, in our view, is the tacit admission by their university partners that they need the assistance.

K-12: Consolidation Continues

Conn Education, a provider of educational materials and technology services for pre-K-12 classrooms, has bought Novel Units, a provider of lesson plans and other K-12 materials for teaching reading. Terms of the deal were not announced. Conn is the parent company of book wholesaler Classroom Library Co., education consultancy Read-Ability, and library management app Book Retriever. Novel Units offers teacher guides and student packets. It was previously owned by ECS Learning Systems. The story of the K-12 market is still all about distribution. If one has a network of relationships at schools, increasing the range of materials to sell to those individuals become the secret to higher margins and financial success.

Workforce: Finding the Rose Among Thorns

Harver, a pre-employment assessment software company, announced that it raised $15M in Series B funding, led by Insight Partners. The investment will further accelerate Harver’s vision to reinvent the volume recruitment process through better digital automation. Harver’s mission is to leverage software to effectively screen candidates in a way that is effective, objective and free from bias. Harver technology is currently employed by Netflix, Uber, Booking.com, and Heineken. The company claims that it provides companies with an intelligent way to evaluate and automate all aspects of candidate selection, while simultaneously fighting unconscious bias in the process.