Education Sector Hot for Merger, Acquisition Deals, Investment Banker Says

Associate Editor

transaction-volume-8315 (3).jpgStrong investor interest in mergers and acquisitions for education companies is likely to continue for the second half of 2015, after a record-setting first half of the year in which the value of transactions reached $6.11 billion—29 percent higher than the same time last year, according to Peter Yoon, a managing director for education at Berkery Noyes, an investment bank.

“I think education is seen as the next new frontier,” he said, adding that this is “the best environment for such transactions since before the recession.”

In the first six months of 2015, 177 deals were completed in all four sectors of education, including professional training, K-12, childcare services, and higher education. That number of transactions is 9 percent higher than in the same period for 2014, and it was the highest volume in the two and a half years included in the Berkery Noyes report detailing the transaction trends 

Merger-and-acquisition activity in the K-12 media and technology sector led that trend in volume, with 43 transactions in companies whose products or software are educational or administrative, as illustrated on the chart above. That compares with 34 deals in that sector in the first half of last year and 32 in 2013.

The number of deals involving K-12 institutions, which are generally private schools, declined during the same period—from 12 to 9 this year. Acquisitions and mergers in the K-20 services sector, which is focused on companies that are not media or software-based, held steady, with 11 acquisitions in the first half of 2014, and ten in the same time frame this year. (The chart above, prepared by Berkery Noyes, illustrates the transaction volume by market segment within the education industry from Jan. 1, 2013 thorough June 30, 2015.)

More Public Funding, More Revenues from Subscriptions

Yoon cited several reasons that both strategic and financial investors are looking to education as a promising market for a return on their investments. Recovering state and local budgets offer improved availability of funding, particularly for higher education, Yoon said. As a result, more money is being spent to purchase products and services from ed-tech and media companies.

At the same time, the lending environment from financial institutions “continues to be very robust,” he said, so private equity groups have an easier time finding the funds to complete transactions.

Investor optimism is fueled, too, by schools’ increasing acceptance of the subscription-based model of paying for educational technology products. That method of payment guarantees a steady revenue stream to companies, which in turn interests investors, said Yoon.

Top K-12 Mergers and Acquisitions

The largest education deal in the first half of 2015 was LinkedIn’s acquisition of for $1.5 billion. But the next four in the top 10 notable transactions in the first half of 2015 involve K-12 public or private schools in the U.S. Ranked by purchase price, the top deals involving pre-collegiate schools are:

2 – Scholastic Educational Technology and Services acquired by Houghton Mifflin Harcourt for $575 million

3 – Six private schools—including three in the U.S.—bought from Meritas LLC by Nord Anglia Education, Inc. of Hong Kong for $559 million

4 – OverDrive Inc., an ebook marketplace that sells and rents ebooks to US schools and libraries, purchased by Rakuten, a Japanese e-commerce company, for $410 million

5 – PowerSchool Inc., a student information system, sold by Pearson to Vista Equity Partners for $350 million

9 – Promethean World PLC purchased by NetDragon WebSoft Inc. for $124 million

Looking to the future, Yoon said “a confluence of factors” that have been favorable in the first six months of the year—better budgets, a friendly lending environment, and acceptance of the subscription model—are likely to continue. “At least for the second half of this year, we really don’t see that trend abating.”

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One thought on “Education Sector Hot for Merger, Acquisition Deals, Investment Banker Says

  1. I wonder how the human resources department of companies could work with managing schools, namely high schools and middle schools………say if a business were to collaborate with an area school??????

    I read somewhere that human resource departments were almost being considered archaic??? I am wondering if part of revitalizing human resources would be to put them in charge of managing partnerships between schools and companies?????

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