The COVID-19 pandemic has impacted education in ways that would have seemed almost unthinkable not that long ago. Entire schools, colleges and universities are closed, exams have been cancelled and there has been a dramatic shift to online teaching for many. Indeed, one estimate puts the number of students now being taught at home at over 770 million globally.
It’s not surprising, therefore, that there has been renewed interest in the “education technology” or “EdTech” sector, as a source of potential solutions for the current challenges facing teaching and learning.
These innovators are not just looking to replace more traditional businesses with an online offering. Like the best disruptors they want to do it better and a great example are those creating a bespoke learning journey for each individual.
EdTech has actually been thriving for quite a while – as evidenced not least by the number of mergers and acquisitions that have been taking place across the sector and the wider education landscape.
Indeed, three trends in particular have been driving EdTech M&A in recent years:
- Publishers looking to reposition their offering to be fit for purpose now and in the future,
- Start-ups seeking to capture market share with customers who are notoriously conservative, and
- Private equity attempting to secure a slice of the (increasingly valuable) action.
Schools in the UK spend around £900 million a year on EdTech, whilst globally it’s a sector set to be worth £128 billion this year – a startling increase from £45 billion in 2015. But with traditional education publishers having been slow to move into EdTech, the area has become dominated by start-ups.
The current pandemic will drive an acceleration of new technology and approaches in a shorter timeframe than the education sector is known for. Some players like AI driven learning provider CENTURY were quick to make a free version of their product available to stressed home schooling parents which will surely help secure future deals with schools. Necessity may really be the mother of adoption.
As these start-ups look to scale and the sector as a whole continues to grow, private equity has taken an increasing interest in making acquisitions. EdTech combines the Private Equity ideals of great scalability and sticky customers.
Take for example, leading private equity house Thoma Bravo’s acquisition of Instructure in a $2 billion cash deal to take the firm private. Instructure focuses on tailor made learning solutions for compulsory and further education – as well as the rapidly expanding employee education sub sector.
Tellingly, the Instructure acquisition was finalised in late February this year – against the backdrop of COVID-19 spreading. Hence we can see just how robust long term drivers are in edtech, compared with the amount of M&A in other sectors that has been put on hold as the coronavirus pandemic spread.
And private equity appetite for the sector is again present in the case of Powerschcool, an AI platform that acts as an administrative hub for learning, grading, attendance and assessment of pupils. The EdTech firm was founded in 1997 but is now owned by major investors Vista Equity Partners and Onex Private Equity.
Their involvement has given Powerschool the financial wherewithal to supercharge its growth by acquisition. This was demonstrated by its 2019 purchase of Schoology, a competitor. The deal combined Powerschool’s base of 45 million students with that of Schoology – active in almost 2,000 school districts – to become one of the biggest educational administrators in the industry.
Private equity houses aren’t the only players looking to invest in the sector
Publishers, who for so long held sway in the industry are now getting involved recognising that standing still is not an option. The mega merger between McGraw-Hill and Cengage may have fallen away recently but others are making smaller but highly astute bets.
For example, Wiley Education – most well-known for their physical textbooks – acquired Knewton, an adaptive learning company which uses AI to help further individual students’ progress. At the same time, such acquisitions of course provide edtech start-ups with an endgame and help them solve that customer acquisition problem.
Similarly, edtech is proving attractive to more diversified media groups who are expert at spotting and capitalising on opportunities in data. For example, Advance Publications, perhaps better known by some of the companies they own (Conde Nast) or are invested in (the Discovery Channel) acquired Turnitin in March of this year.
Turnitin, which uses AI to assess levels of plagiarism in student work, has revolutionised how project submissions are made and offers Advance Publications a foothold in what will no doubt be a much sought-after capability in further education for years to come.
So in conclusion, yes EdTech should receive a boost from the current pandemic. But its existing and future success derives from secular trends which run much deeper.
It seems likely, therefore, that EdTech will continue to see more M&A activity. Indeed, to paraphrase an old adage, it would appear that those who can, tech.
Andrew Jeffs, Business Services Partner at Cavendish Corporate Finance