What Draws Private Equity and Strategic Acquirers to Education Technology

Mergers and Acquisitions

What Draws Private Equity and Strategic Acquirers to Education Technology

By Tony Wan     Aug 3, 2015

What Draws Private Equity and Strategic Acquirers to Education Technology

The education industry’s wheels are turning as the deals keep coming. Venture capital for education technology companies hit $1.6 billion in the first half of 2015.

The other end of the pipeline has seen an uptick in activity as well. Investment bank Berkery Noyes tallied 177 mergers and acquisitions accounting for $6.11 billion over the same period. That’s a nine percent increase in deals over the previous six months (162 in H2 2014) and 29 percent jump in transaction value ($4.75 billion). Nine of the top ten deals involved strategic acquirers, led by LinkedIn’s $1.5 billion purchase of Lynda.com.

The report breaks down deals according to eight categories: childcare services, K-12 institutions, K-12 media and tech, K-20 services, higher-ed institutions, higher-ed media and tech, professional training services and professional training technology.

Compared to H2 2014, deal volume for K-12 media and tech increased by 39 percent (from 31 to 43 ), and higher-ed media and tech jumped 81 percent (from 21 to 38).

“If you look at the activity in terms of the volume of transactions, we’re at the highest level in the last two and a half years,” says Peter Yoon, who focuses on the education and training sector as Managing Director at Berkery Noyes. Other notable deals involved traditional publishers like Pearson, Houghton Mifflin Harcourt and Scholastic.

Yoon expects to see more familiar name in strategic acquisitions. In recent years, companies like Pearson, Houghton Mifflin Harcourt and Cengage have gone through internal restructuring to re-focus their portfolios. He believes “they’re finally out of the woods” and “ready to look externally at other potential avenues of growth.” Pearson, in particular, has been selling off profitable businesses including The Financial Group, Family Education Network and PowerSchool to focus on products that directly impact learning outcomes.

Source: Berkery Noyes

New business models are also attracting private equity buyers “as the sector shifts from being transactional-related revenues to more subscription- and digital-based revenues,” he adds. Also boosting their appetite is a favorable lending environment from debt providers. “The amount of debt on transactions has been rising,” Yoon observes, “and the interest terms for acquirers have been fairly agreeable.”

These bullish market factors may explain why Providence Equity Partners is reportedly seeking a $3.5 billion sale for Blackboard. But these conditions won’t last forever. “There’s also the potential that [lending] rates may go up,” predicts Yoon. “Before that happens, buyers and sellers want to make sure that the deal gets done.”

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