Published Online: January 29, 2013
Published in Print: January 30, 2013, as Digital Technologies Fuel Continued K-12 Acquisitions

Digital Learning Fuels K-12 Market Trends

Value of 2012 swaps down from 2011, but still robust

Last year saw fewer high-profile education mergers and acquisitions than the high-water mark of 2011, but continued developments in the area of digital learning technology contributed to another active year for education companies seeking to diversify their product offerings, a recent analysis concludes.

Some $7 billion changed hands in more than 250 total transactions in 2012, according to the report released this month by the investment banking firm Berkery Noyes.

Smaller acquisitions and mergers made up the bulk of the transactions, with digital learning technologies fueling much of the activity.

Pearson, the international education publisher based domestically in New York City, recorded six transactions in 2012—two fewer than the previous year, but still the most of any education company in that time. The sale of McGraw-Hill's education division for nearly $2.6 billion to Apollo Global Management, a private equity firm based in New York City, was the largest single K-12-related transaction last year.

A 'Good Year'

Although the total 2012 transaction value for education companies dipped compared with 2011's $12 billion, the number of transactions, at some 250, remained about the same. Strong interest in online learning and adaptive-learning software, combined with the implementation of the Common Core State Standards, contributed to lively market activity, said Mary Jo Zandy, the managing director of New York-based Berkery Noyes.

"I think in terms of the quality of the deals, most people would say it was a pretty good year," said Ms. Zandy, referring to the large amount of multimillion-dollar transactions in the educational sector in 2012.

With a revised estimate of $12 billion in mergers and acquisitions, 2011 was a banner year for the education industry. Several high-stakes mergers between K-12 media and technology companies, such as K12 Inc.'s acquisition of Kaplan Virtual Education, an online learning platform for K-12 students, contributed to the health of the education industry that year.

Last year had fewer blockbuster sales, but the steady continuation of acquisitions is a sign of a healthy market, Ms. Zandy said.

The firm's report for 2012 says K-12 media and technology acquisitions made up less of the total transaction value than in 2011, but higher education media and technology had a higher number of transactions than the sector did in 2011.

Following Ed-Tech Trends

Crimped school budgets and demand for computer-based assessments have led to new opportunities for digital companies. As states implement the common-core standards and prepare for the rollout of related tests now being developed, schools are looking for newer and cheaper ways to implement blended learning and adaptive testing, among other instructional technologies.

In addition, distance learning, one-to-one online tutoring, and mobile applications have piqued the interest of publishing and media companies. For example, online learning providers like K12 Inc. and free tutoring websites like Khan Academy continued to attract interest from the education community in 2012, and education companies took note.

Along with the $650 million acquisition of Embanet Compass, a provider of online higher education courses, in October, Pearson paid $90 million for the online English-learning course provider GlobalEnglish last May.

Pearson announced last February that it generated one-third of its sales from digital products and services in 2011, a number that market analysts expect to increase as the company continues to diversify into the technology marketplace. Pearson has not yet released its 2012 report.

Even companies traditionally not affiliated with education are seeking to capitalize on digital learning technologies. Last month, the online-media conglomerate IAC, the New York-based owner of sites like Match.com and Dictionary.com, announced plans to acquire the online tutoring company Tutor.com for an undisclosed price.

Representatives from Tutor.com, which currently has 45 full-time staff members, say their company stands to gain from the merger, as new capital will equip it with more resources and a wider target audience.

"This acquisition provides us with a level of capital to expand the services we offer, and really give our customers the attention they need," said George Cigale, the founder and chief executive officer of Tutor.com.

Related Blog

But Ms. Zandy of Berkery Noyes said some companies maybe holding out for a bigger payoff. Since adaptive testing is viewed by many companies as a hot spot for education investment, companies may hold out and develop their brands while they wait to maximize their shareholder value, she said.

Schools also are looking more to analytic software and mobile learning, which could draw the attention of education companies, said Samantha Adams, a senior director of communications at the New Media Consortium, which releases an annual report on technology trends in education.

"K-12 is completely focused on mobility right now," she said, "whether that means [bring your own device] or mobile apps, or productivity apps like Evernote or Edmodo."

Vol. 32, Issue 19, Page 11

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