Mergers Seen on the Rise in the K-12 Marketplace
Flurry of deals is driven largely by ed-tech sector
The education industry accounted for an estimated $10 billion in mergers and acquisitions last year, with K-12 technology responsible for the second-largest annual increase in transactions of any education sector, a report from an investment banking firm says.
The flurry of transactions last year included major purchases by the education publisher Pearson and the online-course provider K12 Inc. and the acquisition of Blackboard Inc., a learning-management-system company. It matched 2010 activity, but doubled the amount of dollars spent in acquisitions in 2009, according to the report released by New York City-based Berkery Noyes.
Transactions related to K-12 technology continued a steady incline from 16 in 2010 to 24 last year. And the deals were bigger—the nine largest education transactions in 2011 accounted for an estimated $5.66 billion in value, an increase of more than $2 billion over transactions in 2010.
“The level of activity is higher than it ever has been before,” said Mary Jo Zandy, the managing director of Berkery Noyes, which both tracks and advises companies in merger and acquisition deals.
Industry experts say the data reinforce broader trends in K-12 education: Technology is moving quickly into classrooms, companies can enter the market more cheaply, and districts want integrated, comprehensive technology systems, often achievable through acquisition.
Many of last year’s highest-profile transactions in K-12 involved content companies and technology companies. The content companies gained a more diverse suite of products and services to offer districts; the technology companies became better equipped to meet rapidly changing curriculum standards.
“IT directors and tech coordinators are looking for a single point of contact, a well-supported company that can respond to inquiries” and offer features such as student assessment data, grading systems, and digital curricula, all in one, said Mike Lawrence, the executive director of Computer-Using Educators, a Walnut Creek, Calif.-based ed-tech advocacy group.
For $230 million, Pearson, the education publisher based domestically in New York City, purchased SchoolNet, a software company that uses student data to create personalized instruction.
For the second straight year, Pearson led all companies with eight education acquisitions in 2011, including a German provider of test-prep materials, an online-schools operator, and two online tutoring services, the report says. In Pearson’s January trading update, the company reported $3 billion in revenue from its digital products for 2011.
K12 Inc. purchased Kaplan Virtual Education, a former division of Kaplan Inc. that runs virtual education programs for public and private schools. Just months before, Kaplan Virtual Education had acquired its own rival, Insight Schools Inc., a Portland, Ore.-based provider of online courses.
The largest single K-12-related transaction last year was the purchase by Providence Equity Partners, a Providence, R.I.-based private equity firm, of Washington-based Blackboard Inc. for $1.64 billion, plus an additional $130 million in debt. Blackboard itself had been one of the more active acquirers in 2010. Blackboard was a publicly traded company before the 2011 sale, but is now privately held.
The increased activity in K-12, as compared with the relatively modest activity in higher education, owes to two factors, said Karen Billings, the vice president of the Washington-based Software and Information Industry Association’s education division.
First, the K-12 community is slowly but surely warming up to technology in the classroom, especially as digital applications aimed at young children proliferate, she said. And second, the embrace of technology in postsecondary education is spilling over into K-12 as more school districts offer more college-level curricula.
Not coincidentally, the two areas ripe for the most activity this year are prekindergarten and high school, Ms. Billings said.
Widespread adoption of the common standards should spark even more activity, as companies large and small scramble to offer related products, Ms. Zandy of Berkery Noyes said.
“Not everyone can throw out what they have and compete in school districts where they competed before,” she said, suggesting mergers will help some companies adapt.
Of course, the activity isn’t necessarily positive for students.
On the district level, “there’s definitely a concern that as [big education companies] acquire their competition, it limits choice and it limits the resources available to the school system,” Mr. Lawrence said. And, as Ms. Billings put it, districts could decide “a $500 tablet is cheaper than a teacher.”
Already this year, Apple partnered with the three largest textbook producers—Pearson, McGraw-Hill, and Houghton Mifflin Harcourt—to offer e-textbooks exclusive to the iPad, a platform the education industry could now coalesce around, Ms. Zandy said. ("Apple Unveils E-Textbook Strategy for K-12," Jan. 25, 2012.)
She expects 2012 to exceed last year’s activity level.
“Higher ed. has already been consolidated, and in K-12 there’s a lot more consolidation to go,” she said.
Vol. 31, Issue 19, Pages 10-11Published in Print: February 1, 2012, as Merger Activity Strong in School Market