K12 Eyes Further Deals After $165M Acquisition of Coding Bootcamp Galvanize

Mergers and Acquisitions

K12 Eyes Further Deals After $165M Acquisition of Coding Bootcamp Galvanize

By Wade Tyler Millward     Jan 27, 2020

K12 Eyes Further Deals After $165M Acquisition of Coding Bootcamp Galvanize

Another bootcamp has been gobbled up by an education technology company looking to break into the corporate learning and career readiness market. This time, publicly traded virtual schooling and education management provider K12 paid $165 million in cash to buy Denver-based coding bootcamp Galvanize.

For K12, the deal means more coding curriculum for students of its Destinations Career Academies, which offer high school and career training program hybrids. Those academies have served more than 13,000 students nationwide, representing 11 percent of enrollment across all of K12’s businesses, according to a report from investment bank Barrington Research.

It also marks a dramatic expansion beyond its flagship business that once centered on operating and managing online schools for K-12 districts.

For Galvanize—which also owns fellow bootcamp Hack Reactor—the deal means new funding to grow its corporate learning business, open more physical locations and even expand its services to the military. “For the first six months, we’re going to let them spend money to get these revenue opportunities going,” K12 CEO Nate Davis said on an earnings call Monday.

A K12 video on its Destinations Career Academies.

Bootcamp Bonanza

The previous decade has seen more than 400 coding bootcamps worldwide raise more than $1 billion in venture capital across 200 deals, according to education market intelligence firm HolonIQ.

Recent notable deals include Zovio’s (then known as Bridgepoint Education) $17.5 million in cash, plus some stock, for Fullstack Academy, and Chegg’s Thinkful purchase for $80 million. On the high end, Swiss HR firm Adecco Group paid $412.5 million for General Assembly, and 2U spent $750 million for Trilogy Education last year.

The $165 million price for this deal appears in line with past bootcamp deals based on revenue multiples, says Rich Flynn, a managing director at Tyton Partners, an investment banking and strategy consulting firm that represented Hack Reactor in its sale to Galvanize. During the earnings call, K12 executives estimated about $50 million in revenue from Galvanize in 2020, putting the sales price at about 3.3 times that.

Still, the deal is less than the estimated $168 million that Galvanize has raised since it started in 2012, according to Crunchbase. That means that investors may not reap financial returns at a multiple they’d like, as far as ideal outcomes in the venture capital world goes. Galvanize’s backers include familiar names in the edtech investment world—New Markets Venture Partners and University Ventures—along with ABS Capital Partners and the Colorado Impact Fund.

Flynn says other bootcamps that might attract buyer attention include Flatiron School, part of the troubled WeWork coworking space company, and Springboard, which raised an $11 million post-Series A round in December. He expects the rate of blockbuster bootcamp deals to slow given increasing competition. Most of the remaining players in the space are small, regionally focused bootcamps, not ones that compete in the big money corporate learning market.

“You don’t have a lot of players that break through $10 million in revenue,” Flynn says. “You can count them on one hand.”

K12 CEO Nate Davis on mobile technology's impact on education.

Growing Beyond K-12

Davis said K12 chose Galvanize out of the crowded bootcamp space because of Galvanize’s mix of online and in-person learning and its 8,000-plus graduates who have gone on to work at more than 2,000 companies, including major technology stalwarts including Amazon, Apple, Facebook and Google. About 80 percent of Galvanize students land a job within six months of graduation, he said.

His company’s pursuit of corporate learning and career readiness services comes as the company seeks to repair its struggling legacy business of providing educational software and services used to run online schools. Its traditional software business saw a 16.2 percent drop in revenue year over year to $19.36 million for the quarter ended Dec. 31, according to company earnings also released Monday.

This K12 video explains how its online education programs work.

K12 has searched for a faster way to grow its career readiness business, which executives previously said should contribute $90 million in revenue, or about 10 percent of the company’s total revenue for the fiscal year that ends June 30. “K12 is now in this market,” Davis said.

Davis said he sees further opportunity in licensing Galvanize curriculum to universities and schools.

Galvanize offers online and in-person technical training in areas like data science and software engineering. It has grown to eight campuses nationwide and offers a three-month full-time program option as well as a nine-month part-time program option.

In the past few months, it started to offer income share agreements for students, an arrangement where they pay no tuition upfront but instead give up a percentage of their paycheck after they land a job. About 20 percent of Galvanize’s upcoming cohort will fund their education with these agreements, Galvanize CEO Harsh Patel said on the call.

Patel was CEO of Hack Reactor when Galvanize bought the bootcamp in 2018, and took over as Galvanize’s CEO from Al Rosabal in 2019. Rosabal had joined Galvanize in early 2018, after a turbulent 2017 that saw layoffs and leadership changes.

Galvanize announces its income share agreement option.

Though this marks K12’s biggest acquisition to date, it is still interested in buying companies, Davis said. On Monday, his company announced a new $300 million line of credit it can use for acquisitions. Its recent purchases include Big Universe, an online literacy platform, and digital math tool LearnBop.

For the last three months of 2019, K12 reported $257.6 million in quarterly revenue, a 1.1 percent increase year over year. It reported operating income of $30.3 million, about a 9 percent decline over the previous year, and ended 2019 with $213.1 million in cash.

The company expects third quarter revenue between $252 million and $255 million, with an operating income between $18 million and $20 million.

It expects revenue of about $1 billion for the fiscal year that ends in June, with an operating income of between $48 million and $52 million.

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