Ed-Tech Industry Sees Uptick in Mergers and Acquisitions
School Leaders Evaluate Benefits, Drawbacks in Companies' Moves to Consolidate
School leaders are watching the recent consolidation uptick in the education technology industry with a close eye, evaluating the potential upsides and downsides of a string of mergers and acquisitions involving companies that do business in the K-12 sector.
The trend toward consolidation includes moves by several high-profile ed-tech companies:
• Washington-based Blackboard Inc., a learning-management-system company that operates in higher education and K-12 and was one of the most aggressive players this year, has purchased several smaller ed-tech companies.
• Promethean World, a Blackburn, England-based education technology company that makes interactive whiteboards, bought SynapticMash, a learning-management-system and data-collection company based in Seattle.
• Scantron, an Eagan, Minn.-based company that makes assessment and data-collection products, scooped up Spectrum K12, a Towson, Md.-based company that provides software for response-to-intervention programs.
All these business moves are happening for a few important reasons, according to industry observers. They say cash-strapped school districts want more integrated systems that offer better deals, big players in the industry are aggressively trying to ride new technology waves such as online coursetaking and assessment, and many startups or small companies are rolling out new products but finding it hard to sell them without the backing of a bigger company.
The companies making the acquisitions suggest the moves will make them stronger and better able to offer high-quality products to schools.
But some ed-tech experts do not see this as a positive trend.
“[Chief technology officers] are looking for a single supportive solution,” said Mike Lawrence, the executive director of Computer-Using Educators Inc., a Walnut Creek, Calif.-based ed-tech advocacy group that runs leadership and training programs across California. “But they also value choice and competition.”
The problem, he said, is that once the companies merge, the new entities usually cut staff. “Instead of two systems, we’ll have one,” he said. “So CTOs end up with less support. I’ve seen that in district after district.”
In July, Blackboard acquired Elluminate, a Pleasanton, Calif.-based Web-conferencing company, and the New York City-based Wimba, which creates products to facilitate collaboration online, for $116 million for both to establish Blackboard Collaborate, which aims to create a social-learning, collaborative-communication platform. “We are acquiring technology and expertise,” said Brett Frazier, a senior vice president at Blackboard. “Interoperability of technology is very important to school districts and to Blackboard. They want us to deliver it at the lowest cost.”
But Mr. Lawrence said that merger shocked many ed-tech leaders. “Many educators reacted very negatively. It took competition out of the space,” he said. “Now we have to work with 1,000-pound elephants, and there are fewer options for decision makers.”
Offering more value and better services as a result of consolidation is a typical company promise.
And some school leaders pointed out that with tight technology budgets, there’s less appetite for using innovative but relatively untested smaller companies. “Buying anything is one of my biggest challenges,” said Steven Keller, the superintendent of the 8,300-student Redondo Beach Unified School District in California. “We just don’t have the money.”
Still, Mr. Keller laments the disappearing names and faces in the ed-tech industry. “I’ve been in this business for 25 years,” he said. “I had excellent relationships with three or four vendors. Today, I don’t work with any of them. In some cases, we have to track down our reps.”
Foreign companies are stepping up acquisitions, too. Promethean, an interactive-technology company based in Britain, bought Seattle-based SynapticMash this summer. SynapticMash’s product, LearningQube, helps teachers assess and track student performance.
“In the last three years, we’ve become global,” said Iwan Streichenberger, the president of learner response systems and assessment at Promethean. “It’s difficult to be a success if you’re not in the U.S. market.” And, he said, there are only three options in the current market: make, buy, or partner.
Mr. Streichenberger said that Promethean’s goal is offering an integrated product. “A lot of districts have disparate systems,” he said. “If you offer a comprehensive system, you’re more competitive.”
Nicole Engelbert, an analyst for the London-based business-research and -analysis company Ovum, also sees the trend of foreign involvement.
“Ed. tech. is more advanced in Scandinavia and Britain” than it is in the United States, she said. “It’s about expanding in the U.S. and bringing technology with them. One driver is the rise of centralized purchasing by states and regions. That opens the door for larger vendors that are more attractive.”
London-based Pearson is also acquiring smaller players overseas and in the United States. They include strong niche players like Oslo-based Fronter, which creates online-learning and collaboration tools; Piscataway, N.J.-based Intellipro, an ed-tech software company; and Bangalore, India-based TutorVista, an online tutoring and homework help company.
“Pearson is very aggressive,” said Ms. Engelbert.
Companies are also forging more international partnerships.
Bergen, Norway-based “it’s learning,” which has created an online learning platform, joined forces with Chicago-based Embanet, which provides funding and support for online learning, this past summer.
“There’s lots of interest in core curriculum standards and measuring outcome,” said Michael Bronder, the director of business development for “it’s learning.”
Mr. Bronder added that the company will be aggressively expanding. “The goal is to be a top learning platform in the U.S.,” he said. “In the U.S., there’s radical consolidation. This is a good time to be here.”
“A thousand flowers have been blooming in the ed-tech industry,” said Ovum’s Ms. Engelbert, referring to the many startups she has seen in recent years.
“I haven’t seen this since the dot-com bubble,” said Douglas Levin, the executive director of the State Educational Technology Directors Association, or SETDA, based in Glen Burnie, Md. “There’s more excitement in the startup space.”
But district technology leaders who are looking for more integrated products are sometimes wary of taking a risk on a new company.
“Startups love our district,” said Themistocles Sparangis, the chief technology officer for the 678,000-student Los Angeles Unified School District. “But we must be careful. One problem is scaling up. Startups may try and can’t deliver.”
Schools do not “have the luxury of failure,” added Mr. Lawrence from Computer-Using Educators. “The challenge for innovators is that there’s no data.”
New York City-based Knewton, which makes adaptive test-preparation tools for the SAT and other admissions exams, has bypassed that problem by being bundled into a bigger company’s offerings.
“A whole new startup is popping up bringing online to education,” said Knewton’s chief executive officer, Jose Ferreira, a former venture capitalist.
He said the stakes are big: Education in K-12, higher education, and the corporate world is a $7 trillion business worldwide. “The last big industry was online search, which was $30 billion,” he said.
Publishers, he added, are nervously navigating a new digital world. “In ten years, there won’t be printed textbooks,” he predicted. “How are publishers going to adapt and manage transitions? Traditionally, they aren’t strong in technology. They’re all scurrying around.”
The key to ed-tech success, Mr. Ferreira believes, is personalization. “If you look at the big winners in business,” he said, “what they did right is personalization.”
Mr. Ferreira’s goal for Knewton: to be the best at data mining, which allows test prep companies to better tailor their offerings to individual students. And he said that Knewton will likely be sold by 2015.
Good matchmaking is the key to merger successes, experts point out.
Acquisition targets are typically close to profitability, have a proven business model, and generate at least $10 million in annual revenues, said Karen Billings, the education division vice president at the Software & Information Industry Association, based in Washington. And “these days,” she said, “there’s a fit between the company cultures and products. Companies do a long and deep due diligence.”
Take e-learning company K12’s acquisition of niche player KC Distance Learning for $60 million in July. “I knew the owners,” said K12’s CEO, Ron Packard. “We had talked about an acquisition.”
Mr. Packard, who said he believes in best practices for mergers and acquisitions, learned the ropes at McKinsey Consulting, a top management consulting firm based in New York City. His lesson on what doesn’t work: large companies buying large companies and companies moving outside their expertise.
“I wouldn’t want to acquire anyone who doesn’t want to be part of K12,” said Mr. Packard. “Ed. tech. is an elevator asset, where if you lose people, you end up with nothing.”
Mr. Packard said that K12 is hitting the acquisition trail. “We’re looking at several right now,” he said.
Scantron Corp., which provides assessment tools, also took its time acquiring Spectrum. “We want to acquire the best out there,” said Scantron’s president, Bill Hansen.
Expansion is part of the plan. Scantron is in 80 of the largest districts in the United States; Spectrum is in 20. “We can expand into more schools,” said Mr. Hansen.
“We have to be on our game more,” he added. “We have to be out in front of policy and technology changes.”
Vol. 30, Issue 09, Pages 8-9